Essays in political finance and corporate reputation

• Main Author: Canayaz, Mehmet Ihsan
• Other Authors: Mayer, Colin ; Ozsoylev, Han
• Published: University of Oxford 2017
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.729258

This dissertation consists of three essays which examine topics in finance, political science and corporate reputation. The first essay investigates the movement of individuals between government positions and private sector employment in the United States. We study how such movements influence federal government contracting decisions and stock market returns. We show that the firms which will soon hire government officials receive valuable government contracts, beat consensus earnings forecasts, and outperform in the stock market. Managers of these firms can successfully forecast future firm earnings that come as a surprise to equity analysts. Our findings support a quid pro quo hypothesis, in that firms hire government officials in exchange for valuable government contracts. In the second essay I analyse how the committee seniority system in the United States House of Representatives fosters shifts in federal government contracts towards districts of senior committee members. These shifts induce heterogeneity in firm-level investment and hiring activities, future profitability and long-run stock market returns. They also drive sizable investment spillovers through local supply chains and influence future election results. I show that an investment strategy that exploits the ramifications of committee seniority on local corporate activities generates abnormal stock market returns up to 7.03% per year. Finally, in the last essay we undertake an analysis of the value that the stock market attaches to consumer reputation. Using an extensive database of brand imagery surveys, we capture consumers' perceptions of firms and their products in a small number of key factors and show that the stock market attaches considerable value to them. We also examine whether the stock market values consumer reputation correctly and record evidence that it does not always do so, particularly for firms with good value for money products, and during recessions and periods of weak investor sentiment. These results are confirmed by earnings forecast errors of equity analysts. The trading behaviour of investors suggests that it is retail investors who are particularly prone to misprice consumer reputation during such periods.