Connections to Trump paid off for companies

New research measures the financial gains for companies with connections to President Donald Trump prior to and during his term in office.

“S&P 500 firms connected to Trump reaped abnormal stock returns of up to 3.7% following the 2016 election, which translated into approximately $2.5 billion in wealth creation for shareholders,” says Mario Schabus, assistant professor of accounting in Michigan State University’s Eli Broad College of Business.

“During Trump’s presidency, companies in his network also enjoyed higher sales and operating income by up to 9%.”

The study, published in the Journal of Financial Economics, also finds that companies with presidential ties enjoyed relief from government regulators; during the Trump administration, they were up to 4% less likely to be subject to new investigations and 7% less likely to make a payment to regulators.

Additionally, the paper reveals that companies received more government contracts by approximately 50%, which amounted to around 5% of total revenue.

In their analyses, the researchers tracked connections between Trump and more than 60 companies from the S&P 500 going back to 1980 but did not record new connections built after Trump’s 2016 presidential campaign announcement.

“We first analyzed the companies’ stock market reaction to the 2016 election,” Schabus says. “Then, we examined their accounting performance, government-awarded contracts, and regulatory enforcement. We also looked at business representatives who visited the White House under both the Trump and Obama presidencies and measured market reactions to major developments in Trump’s Russia investigation.

“Unlike preceding presidents, most of Trump’s career history has been in the business world; thus, the idea that his role as president would benefit his personal and professional network has drawn constant criticism.

“Our research contributes to the public debate by shedding light on the financial and economic benefits of connectedness to the current US president,” Schabus says. “On the one hand, our results could be viewed by Trump’s critics as evidence of cronyism or corruption. On the other hand, Trump’s supporters could argue that he is merely resolving information asymmetries between policymakers and the private sector by virtue of his extensive industry background.”

Additional coauthors are from China Europe International Business School and the University of Melbourne.

Source: Michigan State University

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