What happens after a CEO visits the White House? For the most part, we just don’t know: U.S. presidents, Trump included, have kept their visitor logs private. President Obama, however, broke with long-standing tradition and made his public. This resulted in a record of more than half a decade (2009-2015) of data of the comings and goings of S&P 1500 corporate executives, totaling more than 2,000 meetings in all. So do companies see a stock bump after an executive has an Oval Office meeting? Yes: the cumulative abnormal return (CAR) is about 0.865% from 10 days before to 40 days after the meetings. But it’s also worth noting that this doesn’t necessarily mean there’s evidence of a quid pro quo relationship between government officials and corporations
What happens after a CEO visits the White House? For the most part, we just don’t know: U.S. presidents, Trump included, have kept their visitor logs private. President Obama, however, broke with long-standing tradition and made his public. While there’s plenty of debate around whether or not transparency around these logs has a broad impact, one thing is for certain: more than half a decade (2009-2015) of the comings and goings of S&P 1500 corporate executives, totaling more than 2,000 meetings in all, is a pretty useful data set. And it’s exactly the one University of Illinois and NBER researchers Jeffrey R. Brown and Jiekun Huang used in conjunction with other financial data to pose an intriguing question in their working paper: do companies see a stock bump after an executive has an Oval Office meeting?
I spoke over email with Brown and Huang about their working paper and what we can extrapolate from it; our edited conversation is below.
Can you briefly outline your main findings? Specifically, do visits by executives to the White House correlate with higher returns?
We find that corporate executives’ meetings with federal officials at the White House are associated with positive abnormal stock returns. For example, the cumulative abnormal return (CAR) is about 0.865% from 10 days before to 40 days after the meetings. For example, This result is driven mainly by meetings with the President and top advisors such as Valerie Jarrett and Jeff Zients. For example, David M. Cote the Chairman and CEO of Honeywell International, visited 30 times; outgoing GE CEO Jeffrey R. Immelt visited 22 times; and Roger C. Altman, the Executive Chairman of EverCore Partners, stopped by 21 times.
We also find that following meetings with federal government officials, firms receive more government contracts and are more likely to receive regulatory relief (as measured by the tone of regulatory news). For example, a Wall Street Journal article reported that Google executives’ frequent visits to the White House were instrumental in the FTC’s decision to drop its antitrust investigation of the company, which is consistent with our findings. The investment of these firms also becomes less affected by political uncertainty after the meetings. In other words, because these firms are better informed about the policy deliberation process, they can invest with greater confidence during times of heightened policy uncertainty. These results suggest that political access is of significant value to firms.
We are also able to characterize how political access is allocated across firms. We find that firms that contributed more to Obama’s presidential election campaigns, firms that spend more on lobbying, firms that receive more government contracts, larger firms, and firms with a greater market share are more likely to have access to the White House.
So do your findings indicate that there’s a quid pro quo situation happening between government and business, or another kind of mutually beneficial relationship?
We don’t have evidence on a quid pro quo relationship between government officials and corporations. A cynical interpretation of our findings is that gaining access to politicians may enable firms to gain undue influence over elected officials and extract political favors. Under such an interpretation, political access facilitates quid pro quo exchanges between firms and elected officials in which policy favors are exchanged for gains to the politicians. A benign interpretation, however, is that political access may enable firms to provide policy-relevant information, which in turn helps elected officials to make more informed decisions on policies that affect the firms. Unfortunately, our data do not allow us to distinguish between these two interpretations.
Should the lesson for companies be that it’s important to develop close ties with the White House, if they haven’t already? Are there any downsides to doing so?
Our findings that firms benefit from political access suggest that it is important for corporations to develop and maintain close ties with the White House, particularly if they are exposed to government policies and actions. Since governments affect economic activities not only through regulations, but also by playing the role of customers, financiers, and partners of firms in the private sector, firms can benefit in multiple ways from a close relationship with governments.
Broadly, we believe that as long as the government plays a significant role in influencing economic activities, firms will seek and benefit from political access, regardless of the party in power. We made FOIA requests for similar records under the previous administrations, but haven’t been successful in obtaining the data. However, we believe that our results are likely to hold under other administrations.
You used the election of Donald Trump as a shock mechanism when it comes to political access. Can you talk a little bit about how this works from a methodological standpoint? And what it may mean practically for the relationship between business and government in the next few years to come?
The idea is that if political access is of significant value, then losing political access should negatively affect firm value. In other words, firms with greater access to the Obama administration and hence a continuing Democratic administration should experience lower stock returns when the election result became known. We find evidence suggesting that this is indeed the case. In particular, we find that, after controlling for various factors that are likely correlated with firms’ political activities, such as stock price run-ups before the election, campaign contributions, lobbying expenses, government contracts awarded, and firm size, the stocks of firms with access to the Obama administration underperformed compared to the stocks of otherwise similar firms by about 80 basis points in the three days immediately following the release of the election result.
It seems as though the Trump administration will be far less transparent about White House visitors than the Obama administration was (and the Obama administration was far more transparent than prior administrations). Do you have a point of view on how much transparency is appropriate?
Since political access can be abused by politicians for private or political gains, we think it is important that the White House continues to release the visitor logs to the public. This can help ensure that citizens and researchers can assess at least the potential of quid pro quo exchanges between politicians and corporations.