CEO political preference and credit ratings |
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| Affiliation: | 1. Graduate School of Management, U.C. Davis, CA 95616, United States of America;2. Anderson Graduate School of Management, U. C. Riverside, CA 92521, United States of America;3. Robert C. Vackar College of Business and Entrepreneurship, University of Texas Rio Grande Valley, TX 78539, United States of America;1. School of Accountancy, Massey University, Auckland, New Zealand;2. Department of Accountancy and Finance, School of Business, University of Otago, New Zealand;1. Sobey School of Business, Saint Mary''s University, 923 Robie Street, Halifax, Nova Scotia B3H 3C3, Canada;2. Faculty of Business, University of Hamburg, Moorweidenstrasse 18, 20148 Hamburg, Germany;3. Campus Saint-Jean, University of Alberta, 8406 Rue Marie-Anne-Gaboury (91 St NW), Edmonton, Alberta T6C 4G9, Canada;4. Moore School of Business, University of South Carolina, 1014 Greene Street, Columbia, SC 29208, USA |
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| Abstract: | This study investigates whether a CEO's personal political ideology, as captured by his or her political contributions, is associated with a firm's credit ratings. Republican CEOs, we find, are associated with higher credit ratings, especially when their firms are headquartered in conservative areas. In addition, the link between political ideology and credit rating is more pronounced in firms that exhibit high financial distress or weak corporate governance. Changes in political ideology are associated with changes in credit rating. Our results support the behavior consistency, upper echelon, and social identity theories, as well as the risk acceptance hypothesis, and are robust to a number of alternative specifications as well as when alternate approaches and measures of credit risk are introduced. Using Republican CEOs as a proxy for conservative CEOs, our evidence implies that credit rating agencies justifiably view a CEO's political ideology and conservatism as indicative of corporate policies and, therefore, as an important determinant of the firm's credit ratings. |
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