Political CEOs Hurt Stock Prices

The Chief Executive Office, or CEO, of a business comes with a lot of responsibility. For better or worse, CEOs are the faces of the companies they lead. They not only set the direction for what the company does and will do, they also function as its main representative, both to the public and to the company’s owners.

For publicly-traded companies, the owners are shareholders. Shareholders can be anyone from people who liked the company’s prospects and bought a handful of shares of its stock to the institutions that manage multi-billion dollar retirement funds for millions of people who buy thousands of shares for the same reason. Shareholders have a vital interest in the success of the business because the future value of their investments depend upon it.

So what then are investors supposed to make of the situation when the CEO of a company in which they have staked their future starts prioritizing partisan politics in their public communications? Especially when that activity suggests they’re not putting the shareholders’ interests in the success and growth of the business first and foremost in their role as CEO?

Or to get straight to the bottom line, are politically partisan CEOs good for stock prices?

A new working paper by William Cassidy and Elisabeth Kempf of the Harvard Business School strongly indicates the answer is no. Political CEOs are not good for stock prices.

The way they came to that conclusion is pretty novel. They focused on corporate Twitter posts made during the period from 2012 through 2022, using natural language analysis to determine which contained partisan political content. They then looked at how various firms’ stock prices behaved in the 10 days before a partisan tweet was issued with how they behaved in the 10 days after. The following figure from the paper shows what they found:

Cassidy and Kempf describe what the panels of the chart illustrate:

Figure 6, Panel A plots the average cumulative abnormal return around partisan tweets. On the day of the tweet itself, the average stock return is close to zero. However, a noticeable decline in the stock price occurs over the ten days following the average partisan tweet, reaching approximately –20 basis points (bps) on event day +10, statistically significant at the 5% level. When we extend the post-event window to 30 days after the tweet, we find that stock prices continue to decline until about 13 trading days after the tweet before leveling off, reaching a CAR of almost negative 30 bps (see Internet Appendix Figure IA.11). In other words, the full stock-price impact takes time to materialize, consistent with the delayed stock-price impact of legislation documented in previous work (e.g., Cohen et al. (2013)). We do not observe a significant trend in the stock price prior to the tweet event.

In Panel B of Figure 6, we separate tweets into those whose partisan slant is more versus less surprising given the company’s past tweet history. Specifically, we compute a tweet’s partisan-slant surprise as the absolute difference between the tweet’s P SI-value and the average P SI-value of the company’s tweets in the 36 months prior to the event. Tweets with a high surprise are those in the top quartile of partisan-slant surprises across all partisan tweets in a given calendar month. All other tweets are considered “low surprise.” Consistent with the news content of partisan-slant surprises being higher, we observe a stronger decline in the stock price in the high-surprise subsample.

The period from 2012 through 2022 saw a sharp rise in partisan tweets made by CEOs of U.S. corporations starting in 2017, particularly in support of policies associated with the left-leaning portion of the political spectrum in the U.S., which greatly outnumbered conservative-leaning tweets. Their results indicate that shift in CEO and corporate communications in favor of partisan politics hurt stock prices.

If you think about it, that makes a lot of sense. Whenever corporate leaders like CEOs turn their attention away from their chief fiduciary duties in running their businesses, it diminishes the outlook for their business’ prospects. To put it into sports terms, it signals they’re taking their eyes off the ball, which is not good for investors.

That’s the best case scenario. A focus on partisan politics can also provide a distraction away from poor business performance, which in the very worse case scenarios, tries to cover up a series of bad decisions that actively hurt both the business and the interests of investors.

Here are Cassidy and Kempf’s main conclusions, in which they also identify the main driver behind the shift in CEO and corporate communication practices:

This paper provides one of the first large-scale empirical analyses of partisan corporate speech, using a novel measure based on natural language processing of corporate social media communication. We use this measure to establish three key stylized facts. First, partisan corporate speech has increased significantly over the past decade, with a particularly sharp rise after 2017. Second, this increase has been disproportionately driven by Democratic-leaning statements, a trend that spans industries, geographies, and firms led by both Democratic and Republican CEOs. Third, partisan corporate statements are, on average, followed by negative abnormal stock returns, with significant heterogeneity depending on the political alignment of the firm’s investor base.

To explain these patterns, we explore potential drivers of the rise in Democratic-sounding speech. While employee and consumer preferences may play a role, we also find novel empirical support for an investor-demand channel. The surge in Democratic corporate speech coincides with the rapid expansion of sustainable investing, and firms with high BlackRock ownership exhibit a particularly strong shift toward Democratic language following Larry Fink’s 2019 letter to CEOs, which urged CEOs to engage more in contentious social and political debates. Our theoretical model formalizes this mechanism, demonstrating how shifts in investors’ nonpecuniary preferences can lead firms to adopt partisan positions, even when doing so negatively impacts stock prices.

Since 2022, BlackRock’s Larry Fink has systematically backed away from supporting the left-leaning “Environmental, Social, and corporate Governance” (ESG) standards he previously championed. It wasn’t good for his influential company’s investments. Or for the investors who own shares in the companies whose CEOs put politics ahead of running the business.

Reference

Cassidy, William, and Elisabeth Kempf. “Partisan Corporate Speech.” Harvard Business School Working Paper, No. 05-056, May 2025. [PDF Document]. DOI: 10.2139/ssrn.5249915.

Image Credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a group of investors attending a company’s annual meeting who are horrified that the CEO is tweeting about politics”.