IDEAS home Printed from https://ideas.repec.org/a/eee/poleco/v30y2013icp92-111.html
   My bibliography  Save this article

The partisan policy cycle and firm valuation

Author

Listed:
  • Camyar, Isa
  • Ulupinar, Bahar

Abstract

Our research probes the firm valuation impact of partisan-motivated policy cycles. We first identify the micro-channels of policy transmission that link partisan policy disturbances to firm value. Then, we draw on firm-level data from 21 industrial democracies for the period extending from 1989 to 2008 to examine whether government partisanship has any distinct impact on firm value. We identify a surprisingly large and consistent positive relationship of left-oriented governments with firm value. Additionally, our research finds that the partisan impact on firm value is appreciably conditioned by factors like economic openness.

Suggested Citation

  • Camyar, Isa & Ulupinar, Bahar, 2013. "The partisan policy cycle and firm valuation," European Journal of Political Economy, Elsevier, vol. 30(C), pages 92-111.
    • Handle: RePEc:eee:poleco:v:30:y:2013:i:c:p:92-111
    DOI: 10.1016/j.ejpoleco.2013.02.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0176268013000165
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejpoleco.2013.02.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Knight*, Brian, 2007. "Are policy platforms capitalized into equity prices? Evidence from the Bush/Gore 2000 Presidential Election," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 389-409, February.
    2. Wendy Edelberg & Martin Eichenbaum & Jonas D.M. Fisher, 1999. "Understanding the Effects of a Shock to Government Purchases," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 166-206, January.
    3. Alesina, Alberto & Londregan, John & Rosenthal, Howard, 1993. "A Model of the Political Economy of the United States," American Political Science Review, Cambridge University Press, vol. 87(1), pages 12-33, March.
    4. Michael C. Herron & James Lavin & Donald Cram & Jay Silver, 1999. "Measurement of Political Effects in the United States Economy: A Study of the 1992 Presidential Election," Economics and Politics, Wiley Blackwell, vol. 11(1), pages 51-81, March.
    5. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
    6. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 309-340.
    7. Andrea Mattozzi, 2008. "Can we insure against political uncertainty? Evidence from the U.S. stock market," Public Choice, Springer, vol. 137(1), pages 43-55, October.
    8. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    9. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, vol. 83(1), pages 11-26, March.
    10. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    11. Lawrence J. Christiano & Martin S. Eichenbaum, 1992. "Liquidity effects, the monetary transmission mechanism, and monetary policy," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 16(Nov), pages 2-14.
    12. Hibbs, Douglas A., 1977. "Political Parties and Macroeconomic Policy," American Political Science Review, Cambridge University Press, vol. 71(4), pages 1467-1487, December.
    13. Aiyagari, S. Rao & Christiano, Lawrence J. & Eichenbaum, Martin, 1992. "The output, employment, and interest rate effects of government consumption," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 73-86, October.
    14. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    15. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
    16. Clark, William Roberts & Hallerberg, Mark, 2000. "Mobile Capital, Domestic Institutions, and Electorally Induced Monetary and Fiscal Policy," American Political Science Review, Cambridge University Press, vol. 94(2), pages 323-346, June.
    17. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122, National Bureau of Economic Research, Inc.
    18. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    19. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1997. "Sticky price and limited participation models of money: A comparison," European Economic Review, Elsevier, vol. 41(6), pages 1201-1249, June.
    20. Anil K Kashyap & Owen A. Lamont & Jeremy C. Stein, 1994. "Credit Conditions and the Cyclical Behavior of Inventories," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 565-592.
    21. repec:fth:harver:1418 is not listed on IDEAS
    22. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    23. Grier, Kevin B & Munger, Michael C, 1991. "Committee Assignments, Constituent Preferences, and Campaign Contributions," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 24-43, January.
    24. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    25. Roberto Perotti, 2005. "Estimating the effects of fiscal policy in OECD countries," Proceedings, Federal Reserve Bank of San Francisco.
    26. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184, National Bureau of Economic Research, Inc.
    27. Milton Friedman, 1961. "The Lag in Effect of Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 69(5), pages 447-447.
    28. Eichenbaum, Martin & Fisher, Jonas D M, 2005. "Fiscal Policy in the Aftermath of 9/11," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(1), pages 1-22, February.
    29. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
    30. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    31. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," American Economic Review, American Economic Association, vol. 82(2), pages 346-353, May.
    32. Faleye, Olubunmi, 2007. "Classified boards, firm value, and managerial entrenchment," Journal of Financial Economics, Elsevier, vol. 83(2), pages 501-529, February.
    33. Eitan Goldman & Jörg Rocholl & Jongil So, 2009. "Do Politically Connected Boards Affect Firm Value?," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2331-2360, June.
    34. Evi Pappa, 2009. "The Effects Of Fiscal Shocks On Employment And The Real Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 217-244, February.
    35. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    36. Alberto Alesina, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 651-678.
    37. Pedro Santa‐Clara & Rossen Valkanov, 2003. "The Presidential Puzzle: Political Cycles and the Stock Market," Journal of Finance, American Finance Association, vol. 58(5), pages 1841-1872, October.
    38. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    39. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    40. Plosser, Charles I., 1982. "Government financing decisions and asset returns," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 325-352.
    41. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
    42. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    43. J. Bradford DeLong & Lawrence H. Summers, 1988. "How Does Macroeconomic Policy Affect Output?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 433-494.
    44. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    45. Osterloh, Steffen & Debus, Marc, 2012. "Partisan politics in corporate taxation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 192-207.
    46. Faccio, Mara & Parsley, David C., 2009. "Sudden Deaths: Taking Stock of Geographic Ties," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(3), pages 683-718, June.
    47. Matthew T. Billett & Tao‐Hsien Dolly King & David C. Mauer, 2007. "Growth Opportunities and the Choice of Leverage, Debt Maturity, and Covenants," Journal of Finance, American Finance Association, vol. 62(2), pages 697-730, April.
    48. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    49. Aschauer, David Alan, 1988. "The Equilibrium Approach to Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 41-62, February.
    50. Garrett, Geoffrey & Lange, Peter, 1991. "Political responses to interdependence: what's “left” for the left?," International Organization, Cambridge University Press, vol. 45(4), pages 539-564, October.
    51. Fredrik Carlsen & Elin F. Pedersen, 1999. "Rational Partisan Theory: Evidence for Seven OECD Economies," Economics and Politics, Wiley Blackwell, vol. 11(1), pages 13-32, March.
    52. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    53. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, vol. 75(1), pages 68-87, March.
    54. Faust, Jon & Irons, John S., 1999. "Money, politics and the post-war business cycle," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 61-89, February.
    55. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    56. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-254, May.
    57. Jordi Galí, 1992. "How Well Does The IS-LM Model Fit Postwar U. S. Data?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 709-738.
    58. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    59. Allayannis, George & Weston, James P, 2001. "The Use of Foreign Currency Derivatives and Firm Market Value," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 243-276.
    60. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
    61. Michael M. Bechtel & Roland F‹Ss, 2010. "Capitalizing on Partisan Politics? The Political Economy of Sector-Specific Redistribution in Germany," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 203-235, March.
    62. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    63. repec:bla:scandj:v:95:y:1993:i:4:p:607-25 is not listed on IDEAS
    64. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    65. Niklas Potrafke, 2009. "Did globalization restrict partisan politics? An empirical evaluation of social expenditures in a panel of OECD countries," Public Choice, Springer, vol. 140(1), pages 105-124, July.
    66. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    67. Oumar Sy & Ashraf Al Zaman, 2011. "Resolving the Presidential Puzzle," Financial Management, Financial Management Association International, vol. 40(2), pages 331-355, June.
    68. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    69. Linnemann, Ludger & Schabert, Andreas, 2003. "Fiscal Policy in the New Neoclassical Synthesis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 911-929, December.
    70. Rotemberg, Julio J & Woodford, Michael, 1992. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1153-1207, December.
    71. William D. Nordhaus, 1975. "The Political Business Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(2), pages 169-190.
    72. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marina Riem, 2016. "Does political uncertainty influence firm owners‘ business perceptions?," ifo Working Paper Series 226, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Potrafke, Niklas, 2017. "Partisan politics: The empirical evidence from OECD panel studies," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 712-750.
    3. Isa Camyar & Bahar Ulupinar, 2019. "Electoral systems and the economy: a firm-level analysis," Constitutional Political Economy, Springer, vol. 30(1), pages 1-30, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.
    2. Roberto Perotti, 2008. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 169-226, National Bureau of Economic Research, Inc.
    3. Peter Claeys, 2007. "Estimating the effects of fiscal policy under the budget constraint," IREA Working Papers 200715, University of Barcelona, Research Institute of Applied Economics, revised Jul 2007.
    4. Jordi Galí & J. David López-Salido & Javier Vallés, 2007. "Understanding the Effects of Government Spending on Consumption," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 227-270, March.
    5. Perotti, Roberto & Monacelli, Tommas, 2008. "Fiscal Policy, Wealth Effects and Markups," CEPR Discussion Papers 7099, C.E.P.R. Discussion Papers.
    6. Quaghebeur, Ewoud, 2019. "Learning And The Size Of The Government Spending Multiplier," Macroeconomic Dynamics, Cambridge University Press, vol. 23(8), pages 3189-3224, December.
    7. Chibi Abderrahim & Chekouri Sidi Mohamed & Benbouziane Mohamed, 2019. "The Impact of Fiscal Policy on Economic Activity over the Business Cycle: An Empirical Investigation in the Case of Algeria," Review of Middle East Economics and Finance, De Gruyter, vol. 15(3), pages 1-23, December.
    8. Vitor Carvalho & Manuel M. F. Martins, 2011. "Investment and output effects of fiscal consolidations in a new-Keynesian DSGE model for the Euro Area: composition matters?," EcoMod2011 3246, EcoMod.
    9. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    10. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 1-50.
    11. Jia, Bijie & Kim, Hyeongwoo, 2015. "Government Spending Shocks and Private Activity: The Role of Sentiments," MPRA Paper 66263, University Library of Munich, Germany.
    12. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    13. Halkos, George & Paizanos, Epameinondas, 2015. "Fiscal policy and economic performance: A review of the theoretical and empirical literature," MPRA Paper 67737, University Library of Munich, Germany.
    14. Ant Afonso & Ricardo M. Sousa, 2012. "The macroeconomic effects of fiscal policy," Applied Economics, Taylor & Francis Journals, vol. 44(34), pages 4439-4454, December.
    15. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "What determines government spending multipliers? [Mafia and public spending: Evidence of the fiscal multiplier from a quasi-experiment’, mimeo]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(72), pages 521-565.
    16. Thomas Brand, 2017. "Vitesse et composition des ajustements budgétaires en équilibre général : une analyse appliquée à la zone euro," Revue économique, Presses de Sciences-Po, vol. 68(HS1), pages 159-182.
    17. Mechtel, Mario & Potrafke, Niklas, 2009. "Political Cycles in Active Labor Market Policies," MPRA Paper 14270, University Library of Munich, Germany.
    18. Kim, Hyeongwoo & Shao, Peng & Zhang, Shuwei, 2023. "Policy coordination and the effectiveness of fiscal stimulus," Journal of Macroeconomics, Elsevier, vol. 75(C).
    19. Kamal, Mona, 2010. "Empirical Investigation of Fiscal Policy Shocks in the UK," MPRA Paper 26473, University Library of Munich, Germany.
    20. Shafik Hebous, 2011. "The Effects Of Discretionary Fiscal Policy On Macroeconomic Aggregates: A Reappraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 674-707, September.

    More about this item

    Keywords

    Classical Partisan Theory; Political business cycle; Firm value; Fiscal policy; Monetary policy;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:poleco:v:30:y:2013:i:c:p:92-111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505544 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.