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Political Polarization and Finance

Author

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  • Elisabeth Kempf
  • Margarita Tsoutsoura

Abstract

We review an empirical literature that studies how political polarization affects financial decisions. We first discuss the degree of partisan segregation in finance and corporate America, the mechanisms through which partisanship may influence financial decisions, and available data sources to infer individuals' partisan leanings. We then describe and discuss the empirical evidence. Our review suggests an economically large and often growing partisan gap in the financial decisions of households, corporate executives, and financial intermediaries. Partisan alignment between individuals explains team and financial relationship formation, with initial evidence suggesting that high levels of partisan homogeneity may be associated with economic costs. We conclude by proposing several promising directions for future research.

Suggested Citation

  • Elisabeth Kempf & Margarita Tsoutsoura, 2024. "Political Polarization and Finance," NBER Working Papers 32792, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32792
    Note: AP CF POL
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    Cited by:

    1. Pablo Ottonello & Wenting Song & Sebastian Sotelo, 2024. "An Anatomy of Firms’ Political Speech," Staff Working Papers 24-37, Bank of Canada.

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    JEL classification:

    • G0 - Financial Economics - - General

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