Embed Size (px)
Citation preview
1
Who, Republican or Democrat CEOs, laughs last?
Political cycles in the market for corporate directors
Changmin Lee
Hanyang University Business School
222 Wangsimni-ro, Seongdong-gu
Seoul, Korea, 133-791
Jihong Jeon
Hanyang University Business School
222 Wangsimni-ro, Seongdong-gu
Seoul, Korea, 133-791
Woonam Seok
Korea Corporate Governance Service
76, Yeouinaru-ro, Yeongdeungpo-gu
Seoul, Korea, 07329
We would like to thank John J. Moon and other seminar participants at ESG Seminar, Korea
Exchange at Seoul (March 2017), Dep’t of Econ, SKKU University, Seoul (Nov 2017), for helpful
comments and suggestions.
2
Who, Republican or Democrat CEOs, laughs last?
Political cycles in the market for corporate directors
Ji-hong Jeon, Woo-nam Seok, Chang-min Lee*
Abstract
In this paper, we explore the relationship between CEO’s political preference and post-retirement
directorship holding by individual CEOs. We use a data set on the political donations of CEOs to major
political parties during from 2003-2014 in the USA. Firstly, our empirical evidence suggests that the
political donations of CEOs are more likely to reveal a preference, not strategic behavior. Seventy-one
point three percent of CEOs do not change the pattern of donation according to the ruling party. Second,
the success in the market for corporate director depends on the ruling party. Republican partisan CEOs
hold larger outside directorships than Democratic partisan CEOs only under a Republican regime. These
regressions results are robust for controlling the endogeneity problem. Thirdly, Democratic CEOs have
more variations on outside directorships across political regimes. Democratic CEOs hold 0.72
directorships two years after retirement and 0.71 directorships three years after retirement under a
Democratic regime, which are statistically larger than 0.35 and 0.13 under a Republican regime.
However, Republican CEOs hold stable outside directorships across different ruling parties. Finally, the
political cycle in the market for corporate director could be partially explained by the connection value
in the regulated industry. Democratic partisans hold more outside directorships in the regulated industry
than Republican partisans for two years after retirement under a Democratic regime.
Keywords: Political Preference, Political Connections, Boards of Director, CEO, Career Concern
JEL classification: G30
3
Ι. Introduction
“Political connection” or “political preference” of CEOs or boards of director is a popular research topic.
Many studies provide theoretical discussions and empirical evidence at the corporate level, for instance,
the effect of those on the value or policy of a firm. The first trend is for the political connection.1
Examples are: Fisman (2001) for the value of political connections with a president, Faccio (2006) for
the value when officers or large shareholders involved in business enter politics, Leuz and Oberholzer-
Gee (2006) for the effect of connections on long-run performance, Goldman, Rocholl and So (2008)
for the abnormal stock return following the announcement of the nomination of a politically connected
individual to the board, Cooper, Gulen and Ovtchinnikov (2010) for the effect of the corporate
political contributions on the abnormal stock returns, Yu and Xiaoyun (2011) for the effect of lobbying
on fraud detection by regulators, Kim, Pantzalis and Park (2012) for the effect of political geography
on the stock returns, and Akey (2015) for the value of donating to winning candidates.
The second trend is for the political preference. Examples are: Gordon, Hafer and Landa (2007) for
investment and consumption motives for political contributions, Hong and Kostovetsky (2012) and
Borghesi, Houston, and Naranjo (2014) for the relationship between the political preference and the
policy, Lee, Lee, and Nagarajan (2014) for the effects of alignment in political orientation between
the chief executive officer (CEO) and independent directors, Hutton, Jiang, and Kumar (2014) for
the effects of personal political preferences on the levels of corporate debt, capital and R&D
expenditures, and profitability, Christensen, Dhaliwal, Boivie, and Graffin (2015) and Francis,
Hasan, Sun and Wu (2016) for the relationship between personal political orientation and tax
avoidance, and Unsal, Hassan and Pantaleoni (2016) for the relationship among the political
preference, lobbying efforts, and performances.
In this paper, we analyze the relationship between CEO’s political preferences and the number of post-
retirement directorships CEO holds. Previous literature focuses on the effect of “political connection”
1. A good example for the political connection is shown in Goldman, Rocholl and So (2008). A company is classified as
politically connected if it has at least one board member with one of the following former positions: president (Gerald R. Ford),
presidential (vice-presidential) candidate, senator, member of the House of Representatives, (assistant) secretary, deputy
secretary, deputy assistant secretary, undersecretary, associate director, governor, director (CIA, FEMA), deputy director (CIA,
OMB), commissioner (IRS, NRC, SSA, CRC, FDA, SEC), representative to the United Nations, ambassador, mayor, staff
(White House, president, presidential campaign), chairman of the Party Caucus, chairman or staff of the presidential election
campaign, and chairman or member of the president's committee/council.
4
or “political preference” on the firm. We, however, shed new light on “political preference” in the
market for corporate directors. We tackle whether the political preference of a CEO matters or not for
his individual life and career path after retirements. It naturally follows a question. Why “market for
corporate directors?” Brickley, Linck, and Coles (1999), Linck, Netter, and Yang (2008) and Lee
(2011) show that main players in the market for corporate directors are retired CEOs. Put simply, “CEO”
is not the end of career path in the professional labor market. Moreover, Brickley, Linck, and Coles
(1999) study the evidence about the CEO post-retirement. Ongoing CEOs can get incentives for
acquiring the directorship on his or her own board and an outside directorship on other boards after
retirement. CEOs holding the directorship position after retirement strongly create higher annual
abnormal stock returns and annual accounting returns than CEOs who do not keep the directorships
during their CEO tenure. This means that the market for corporate director functions well when it finds
talented CEOs. We could ask a question. Would the CEO’s political preference be valued in the market
for corporate directors? In this sense, our paper is very close to Goldman, Rocholl and So (2008). They
analyze the stock-price response to the Republican win of the 2000 presidential election and finds that
companies with boards connected to the Republican Party increase in value, and companies connected
to the Democratic Party decrease in value. They show the value of boards’ political connection at the
firm. We test the value of boards’ political preference for their career.
For that purpose, we use a data set on the political donations of CEOs to major political parties from
2003-2014 in the USA: George Walker Bush, 2003~2008, a Republican and Barack Hussein Obama,
Jr. 2009~2014, a Democrat. We measure the political preference as the contribution amounts to
Republicans minus Democrats divided both parties’ contributions from 2003-2014, which are similar
as Borghesi, Houston, and Naranjo (2014) and Lee, Lee, and Nagarajan (2014).
Our main findings follow. We, firstly, address a possibility that the individual donation is driven by
strategic incentives as in Ovtchinnikov and Pantaleoni (2012). Our empirical evidence supports that
the political donations of CEOs are more likely to reveal preference, not strategic behavior. Seventy-
one point three percent of CEOs do not change the pattern of donation according to the ruling party.
Second, we find that CEO’s political preference does not have effect on outside directorships, in general.
Republican partisan CEOs, who donate only to a Republican Party, hold 0.69 and 0.73 post-retirement
outside directorships for two and three years after retirement compared to 0.66 and 0.64 for Democratic
partisan CEOs who donate only to the Democratic Party. There is no statistically significant difference
between Republican partisans and Democratic partisans. The regression results also show that the
5
number of post-retirement outside directorships is not associated with the political preference. Thirdly,
however, the success in the market for corporate director depends on the ruling party. Republican
partisan CEOs hold more outside directorships under a Republican regime than Democratic partisan
CEOs. Republican partisan CEOs hold 0.82 and 0.83 post-retirement outside directorships for two and
three years after retirement, which is statistically larger than 0.35 and 0.13 for Democratic partisan
CEOs under a Republican regime. Meanwhile, Republican partisan CEOs hold 0.65 and 0.70 post-
retirement outside directorships for two and three years after retirement, which is not statistically
different from 0.72 and 0.71 for Democratic partisan CEOs under a Democratic regime. The regression
results also show that the number of post-retirement outside directorships is positively correlated with
the political preference under a Republican regime. These regressions results are robust for controlling
the endogeneity problem. Fourth, Democratic CEOs have more variations on outside directorships
across political regimes. Democratic CEOs hold 0.72 and 0.71 directorships under a Democratic regime,
which is statistically larger than 0.35 and 0.13 under a Republican regime. However, Republican CEOs
hold 0.65 and 0.70 directorships under a Democratic regime, which is not statistically different with
0.82 and 0.83 under a Republican regime. Finally, the political cycle in the market for corporate director
could be partially explained by the connection value in the regulated industry. Democratic partisans
hold 0.12 and 0.23 outside directorships in unregulated industry under a Republican regime. It increases
to 0.26 and 0.46 under a Democratic regime. Democratic partisans hold 0.26 outside directorships in
the regulated industry, which is significantly larger than Republican partisans 0.19. For three years after
retirement, Democratic partisans hold 0.24 outside directorships in the regulated industry, which is
higher than Republican partisans under a Democratic regime, even though not significant.
The rest of the paper is organized as follows. Section ΙΙ describes the data and descriptive statistics.
Section ΙII explores the main result. Section ΙV suggests the possible explanations. Section V concludes.
ΙI. Sample
We collect the contribution data of the retired CEOs, financial data during their CEOs tenure and post-
retirement number of outside directorship to find out the relationship between the political preference
and outside directorship.
A. Political Preference
6
CEO’s contribution to committee
We collect the political contribution of the retired CEOs to parties in the USA from the Federal Election
Commission (FEC) website. The collected data is composed mainly of the contribution amounts and
numbers for retired CEOs contributing to both the Republican and Democratic Parties for 12 years. In
detail, we use three different datasets among the contributions by individuals, committee and candidate
master files in FEC web referred the contribution of CEOs from 2003 to 2014 to two parties both the
Republic and Democratic Parties. In the individuals file, the contribution amount by individuals is
specified in the FEC site as $200 or more during data period in FEC site. It contains contributions by
individuals filed, including the contributor names, addresses, the contribution amount, date, and the
identification number which enables matching to two other different committee and candidate datasets.
The committee master file contains committee names registered in FEC, addresses, committee party
and committee identification. The candidate file contains candidates who have campaign committees
irrespective of the election year and are involved as a member of a draft committee or a non-connected
committee which registers as supporting or opposing a candidate. Also, it includes candidate
information such as identification number, party affiliation, candidates’ election year, office address,
email. Originally, we have the observation number about 38,000 CEOs of 1,094 companies during the
period for this study from FEC website. However, we limited it to 555 CEOs who retired between 2003
and 2014 within S&P (Standard and Poor) 1,500 companies.
7
B. Data during their CEO position
CEOs' firm
We use the financial data for their CEO company from Wharton Research whether the performance of
CEO might influence to get a position of the outside director after retired or not. We expect a good
performance for the company during their tenure might guarantee the outside director after retired CEOs
based on Brickley, Linck, and Coles (1999), and Lee (2011). We collect the financial data for the
company of CEOs in office to explain the performance of CEO. There are various data as independent
variables such as assets, abnormal stock return, and the return of assets related to dependent variable as
the number of the outside director. We calculate the average assets of a CEO’s company as the
explanatory variables for four years before retirement and then take the natural logarithm of total assets.
We collect the abnormal stock return (ASR), the compound average annual return minus the Center for
Research in Security Prices (CRSP) value-weighted index for stock markets from Compustat in WRDS.
The Industry Adjusted Return of Assets (ROAJ) is ROA the CEO’ company for four years minus the
average value of ROAJ of the same industry before retirement. Finally, we have the regulation dummy
variable that equals one when the CEO company is a utility, depository institution or insurance sector
of Standard Industrial Classification (SIC) code from ExecuComp data in WRDS.
C. Post-retirement directorships
We collect the retired CEOs’ directorship data from 2003-20142 from ISS (Institutional Shareholder
Services, formerly RiskMetrics). ISS director data contains information about board members in S&P
major index firms, including individual characteristics. “Outside directorship” means that the director
did not hold the CEO position in the director firm. We match the retired CEO’s name and age to find
the number of directorships in the post-retirement period. Because of the data availability our dataset
2. Using the data from 2003 is mainly due to the enactment of Sarbanes-Oxley(SOX) act in 2002. There is a significant impact
of SOX on director market. Section 101 recommends a full-time director and Section 301 gives more responsibility and stricter
independency standards to the audit committee of a board. There are several studies about the impact of SOX on the director
market. Linck et al. (2009) examine the effects of SOX on the demand for and the supply of corporate directors. They find an
increased workload because of more frequent board meetings and increased risks as measured by higher Director & Officer
Insurance premiums. Jiraporn et al. (2009) find that the U-shaped relation between number of outside board memberships
and committee memberships changed to the negative relation after SOX. Thus, it fails to reject the busyness hypothesis2 for
directors due to the SOX enactment. The busyness hypothesis argues that the more the board seat a director holds, the fewer
committee is assigned. Cashman et al. (2012) analyze the relationship between director busyness and firm value and they find
that the negative relationship between board busyness and firm value has weakened during post-SOX period. Thus, they argue
that directors have felt pressure to behave in a more responsible manner by SOX.
8
only counts the retired CEO’s directorships in the S&P major index firms.
ΙII. Descriptive Statistics
<Table 1>
<Table 1> shows the definition of main variables. For instance, Dn2, and Dn3 stand for number of
outside directorships for two and three years after leaving office, respectively. Rel is an individual
CEO’s political preference index; contribution amounts to Republicans minus Democrats divided both
parties’ contributions during 2003-2014. CEO characteristics and Financial characteristics are
explanatory variables to be used in the regression analysis.
<Table 2>
<Table 2> shows the summary statistics for main variables. The total number of observations is 555
retired CEOs. The mean number of outside directorships for two3 and three years after leaving office,
Dn2 and Dn3, is 0.71, and 0.72, respectively. Rel is an individual CEO’s political preference index,
contribution amounts to Republicans minus Democrats divided both parties’ contributions during 2003-
2014. The averaged Rel is 0.14, which is larger than 0. It implies that retired CEOs are more oriented
to the Republican Party.
<Figure 1 and Table 3>
3. Using board seats two year after retirement is the conventional way to examine the number of post-retirement directorships
established in previous literatures by Brickley et al. (1999), Fahlenbrach et al. (2011), Lee (2011), Harford and Schonlau
(2013), Liu (2014), Liu et al. (2017). Additionally, analyzing directorships three year after retirement is worth considering the
process of CEO succession. Typically, the retired CEO remains in a firm as a chairman during one or two subsequent year of
his retirement (Naveen, 2006). Thus, it is possible that not his own human capital, but his chairmanship affects the board seat
during the second year following his retirement.
9
<Figure 1 and Table 3> show the distribution of retired CEOs’ political preference. <Table 3. Panel A>
shows that Republican partisans, Rel is 1, are 227 out of 555 retired CEOs. It consists of 40.9%.
Democratic partisans, Rel is -1, are 163 out of 555 retired CEOs, 29.4% in the full sample. In <Table 3.
Panel B>, Republican partisans who retired during Republican regime (2003-2008) are 99 out of 213,
46.5% and Democratic partisans who retired during Republican regime (2003-2008) are 54 out of 213,
25.4%. Likewise, Republican partisans who retired during Democratic regime are 128 out of 342, and
Democratic partisans who retired during Democratic regime are 109 out of 342, 31.9%.
ΙV. Empirical Results
A. Political Preference or Strategic Behavior
We, firstly, address a question as follows. Would the individual donation behavior really reflect the
political preference? Is there a possibility that the individual donation is driven by strategic incentives?
Much previous literature supports the political preference argument, but it is hard to rule out the strategic
behavior hypothesis completely. For instance, Ovtchinnikov and Pantaleoni (2012) present evidence
that individuals make political contributions strategically by targeting politicians with the power to
affect their economic well-being. Individuals in Congressional districts with greater industry clustering
choose to support politicians with jurisdiction over the industry. Importantly, individual political
contributions are associated with improvements in operating performance of firms in industry clusters.
The relation between contributions and firm performance is strongest for poorly performing firms, firms
closer to financial distress, and for contributions in close elections.
<Table 4>
<Table 4> measures the amount of political contribution relative to CEO compensation. Convpay shows
the proportion of the one year averaged political contributions amount to one year averaged CEO
Compensation during CEO tenure for each retired CEO. The political contribution amounts to only 0.03%
of CEO compensation.
<Table 5>
10
<Table 5> shows the pattern of donation behavior under different political regimes. Rel Republican
Regime is an individual CEO’s Rel during Republican regime (2003-2008) and Rel Democratic Regime
is an individual CEO’s Rel during Democratic regime (2009-2014). In the unpaired sample, Rel
Republican Regime is 0.18 and Rel Democratic Regime 0.09. For the paired sample, Rel Republican
Regime is 0.20, which is higher than Rel Democratic Regime 0.09, but not statistically significant. There
is no strong evidence that retired CEOs donate strategically according to the ruling party.
<Table 6>
<Table 6> shows the pattern of donation behavior under different ruling party in a different way.
Seventy-four out of 164 retired CEOs, 45.1%, donate more to the Republican Party whatever the ruling
party is. Forty-three out of 164 retired CEOs, 26.2%, donate more to the Democratic Party whatever
the ruling party is. In sum, 71.3% of retired CEOs do not change donation behavior across different
political regimes. 47 out of 88 partisan CEOs, 53.4%, allocate all to Republican Party whatever the
ruling party is. 24 out of 88 partisan CEOs, 27.3%, allocate all to Democratic Party whatever the ruling
party is. In sum, 80.7% of partisan CEOs hold their pattern of donation across different political regimes.
These findings also support the political preference argument.
B. Regression results in the full sample
<Table 7>
<Table 7> shows the post-retirement outside directorships. Dn2 and Dn3 represent the number of
outside directorships for two and three years after leaving office. Republican partisan CEOs hold 0.69
and 0.73 post-retirement outside directorships for two and three years after retirement, on average.
Democratic partisan CEOs hold 0.66 and 0.64 post-retirement outside directorships, on average. There
is no statistically significant difference.
<Table 8 and 9>
<Table 8 and 9> reports ordered logit estimates on post-retirement outside directorships for two and
three years after retirement, respectively. The specification is based on Brickley, Linck, and Coles
11
(1999), and Lee (2011). They show that the number of post-retirement outside directorships depends
on the characteristics of the firm where they work as CEO. Our empirical evidence shows that the
political preferences of retired CEOs are not associated with the number of post-retirement outside
directorships. Rel and Rel_Dummy, the index of political preference, do not have effects on the success
in the market for corporate directors.
C. Regression results: Republican regime vs Democratic regime
<Figure 2 and 3>
<Figure 2 and 3> report the fitted line between the number of outside directorships two and three years
after retirement, Dn2 and Dn3 for Republican and Democratic partisans and political regime. George
Walker Bush, 2003~2008, is a Republican and Barack Hussein Obama, Jr. 2009~2014, is a Democratic.
Republican partisans have more outside directorships under a Republican regime than Democratic
partisans. However, this pattern is reversed under a Democratic regime.
<Table 10>
<Table 10> shows the mean difference between the number of outside directorships two and three years
after retirement, Dn2 and Dn3 for Republican and Democratic partisans across political regime. For
instance, Republican partisans hold 0.82 and 0.83 outside directorship two years and three years after
retirement, which is statistically larger than 0.35 and 0.13 compared to Democratic partisans under a
Republican regime. However, Republican partisans hold 0.65 and 0.70 outside directorship two and
three years after retirement under a Democratic regime, which is lower than 0.72 and 0.71 of Democratic
partisans even though statistically insignificant.
<Table 11 and 12>
<Table 11 and 12> reports regression results on the number of outside directorships two and three years
after retirement. The specification (1) and (4) in all tables are baseline regression results, ordered logit
estimates in the full sample. An interaction term, Rep_Dummy*Rep_reg_Dummy, is positive and
significant in <Table 11 and 12>, which implies that partisan Republican CEOs hold more outside
12
directorships under a Republican regime.
For robustness checks, we, firstly, use a zero-inflated Poisson distribution model in the full sample. One
concern in our sample is retired CEOs who hold zero outside directorships after retirement. It is possible
that there are two different kinds of retired CEOs holding zero outside directorships: one who
participates in the market and one who voluntarily exits the market for corporate directors. To address
this excess zero-count data problem, we adopt a zero-inflated Poisson model based on Greene (1994).4
We assume that zero outcome is due to two different processes. The two processes are that a retired
CEO has not participated vs. participated in the director market. If they have not participated in the
director market, the only outcome possible is zero. If they have participated in the director market, it is
then a count process. The specification (2) and (5) are zero-inflated Poisson models in the full sample.
An interaction term, Rep_Dummy*Rep_reg_Dummy, is positive and significant in <Table 11 and 12>.
Secondly, the specification (3) and (6) are ordered logit estimates in the sub-sample. Specification (3)
and (6) use only the sample which has at least one directorships including outside or inside (employee)
directorships. We try to exclude retired CEOs who voluntarily leave the market for corporate directors.
An interaction term, Rep_Dummy*Rep_reg_Dummy, is positive and significant in <Table 11 and 12>,
too.
D. Regression results: Endogeneity problem
Now, we address potential concerns about the endogeneity problem between success in the market for
corporate directors and political preference of a retired CEO. We use the presidential election result as
the instrumental variable. The presidential election result of the state where the HQ is located can affect
the political preference. However, there is no direct connection between the regional political preference
and post-retirement directorships. During our sample period, the presidential elections conducted three
times in year 2004, 2008, and 2012. Based on the majority results (Republican vs Democrat) of the
presidential elections, we decide the regional political preference. An individual political preference can
be affected by the social influences (regional effect). Tam Cho (2003) and Gimpel, Lee, and
Kaminsky (2006) analyze how the geographic pattern affects the individual campaign contributions
and they find that geographical distribution is related to the individual campaign contribution.
4 Currently, Ahern and Sosyura (2014) used a zero-inflated Poisson model.
13
<Table 13>
<Table 13> shows the strong correlation between individual preference and regional preference. Rel
Republican Win State is a Rel of CEO who works at a firm where a headquarters is located in a state a
Republican candidate wins in the 2004, 2008 and 2012 president elections. Rel Democratic Win State
is a Rel of CEO who works at a firm where a headquarters is located in a state a Democratic candidate
wins in the 2004, 2008, and 2012 presidential elections. For instance, Rel Republican Win State is 0.41
in <Panel B>, which is statistically higher than Rel Democratic Win State, 0.04. A CEO who works in
a Republican-friendly state prefers the Republican party more.
<Table 14>
<Table 14> estimates 2-stage regression models by using an instrumental variable to address the
endogeneity problem. We instrument Rep_Dummy with the regional political preference. The
specification (1) and (5) are 2-stage ordered logit estimates in the full sample. The specification (2) and
(6) are 2-stage zero-inflated Poisson model in the full sample. The specification (3) and (7) are 2-stage
ordered logit estimates in the sub-sample. The specification (4) and (8) are 2-stage OLS estimates in
the sub-sample. An interaction term, Rep_Dummy*Rep_reg_Dummy, is positive and significant in many
specifications. Our results are robust.
V. Possible Explanations
What would explain the political cycle in the market for corporate director? We suggest two possible
theories. The first one is to demand “(potential) political connection” as a lobbyist for the ruling party.
Republican partisans are more likely to have a political connection with a Republican government and
vice versa.
<Table 15>
We test the first theory to decompose the number of outside directorship into regulated and unregulated
14
industry holdings by retired CEOs. There is a possibility that the political connections value more in
the regulated industry (Goldman, Rocholl and So, 2008; Babenko, Fedaseyeu and Zhang, 2017).
<Table 15> partially supports this. Democratic partisans hold 0.12 outside directorships in regulated
industry and 0.23 outside directorships in the unregulated industry for two years after retirement under
a Republican regime. This increases to 0.26 in the regulated industry and 0.46 in the unregulated
industry under a Democratic regime. The value of political connection exists not only in the regulated
industry, but also in the unregulated industry. However, the point is that Democratic partisans hold 0.26
outside directorships in regulated industry, which is significantly larger than Republican partisans 0.19.
For three years after retirement, Democratic partisans hold 0.24 outside directorships in regulated
industry, which is higher than Republican partisans under a Democratic regime, even though not
significant.
The second possible theory is “birds of a feather” explanations. Fracassi and Tate (2012) find that
powerful CEOs hire directors that are more socially connected with them, leading to weaker monitoring,
and more value-destroying mergers. Fahlenbrach, Low and Stulz (2010) show that appointments
outside CEOs to their boards have a certification benefit for the appointing firm. CEOs are more likely
to join boards of large established firms that are geographically close, pursue similar financial and
investment policies, and have comparable governance to their own firms. Lee, Lee, and Nagarajan
(2014) show the alignment in political orientation between the chief executive officer (CEO) and
independent directors. In this sense, partisan Republican CEOs prefer more Republican partisan outside
directors and vice versa.
<Table 16 and 17>
<Table 16 and 17> test a “birds of a feather” theory. <Table 16> shows that there is no significant
political preference difference between newly appointed CEOs across ruling parties. New CEO Rel
Republican Regime, the political preference of newly appointed CEOs under a republican regime, is
0.128 and New CEO Rel Democratic Regime, the political preference of newly appointed CEOs under
a Democratic regime, is 0.124. <Table 17> reports a similar result. The proportion of Republican
partisans on newly appointed CEOs under a Republican regime is 39.1% and 40.6% under a Democratic
regime. The proportion of Democratic partisans on newly appointed CEOs under a Republican regime
is 28.9% and 29.1% under a Democratic regime. All results are not statistically significant. There is no
evidence supporting a “birds of a feather” theory.
15
VI. Conclusions
In this paper, we study the relationship between CEO’s political preferences and the number of post-
retirement directorships CEO holds. Firstly, we provide evidence that the political donations of CEOs
reveal preference, not strategic behavior. Second, the number of post-retirement outside directorships
is not associated with the political preference. Thirdly, however, the effects of political preference in
the market for corporate director depends on the ruling party. Republican partisan CEOs are more
popular under a Republican regime than Democratic partisan CEOs. Republican partisan CEOs hold
less post-retirement outside directorships than Democratic partisan CEOs under a Republican regime,
which are not statistically significant. These results are robust for controlling the endogeneity problem.
Fourth, Democratic CEOs have larger fluctuations in the number of outside directorships across
political regimes. The number of post-retirement outside directorships for Democratic CEOs increases
significantly under a Democratic regime, but Republican CEOs hold a similar number of post-
retirement outside directorships across ruling parties. Finally, the political cycle in the market for
corporate director could be partially explained by the connection value in the regulated industry.
Democratic partisans hold significantly larger outside directorships in the regulated industry than
Republican partisans under a Democratic regime for two years after retirement.
16
References
Ahern, K. R., & Sosyura, D. (2014). Who writes the news? Corporate press releases during merger
negotiations. The Journal of Finance, 69(1), 241-291.
Akey, P. (2015). Valuing changes in political networks: Evidence from campaign contributions to close
congressional elections. The Review of Financial Studies, 28(11), 3188-3223.
Alexei V. Ovtchinnikov, Eva Pantaleoni, 2012, Individual political contributions and firm performance,
Journal of Financial Economics, 105, 367-392.
Babenko, I., Fedaseyeu, V., & Zhang, S. (2017). Do CEOs Affect Employees' Political Choices.
Borghesi, R., Houston, J. F., & Naranjo, A. (2014). Corporate socially responsible investments: CEO
altruism, reputation, and shareholder interests. Journal of Corporate Finance, 26, 164-181.
Brickley, J. A., Linck, J. S., & Coles, J. L. (1999). What happens to CEOs after they retire? New
evidence on career concerns, horizon problems, and CEO incentives. Journal of Financial
Economics, 52(3), 341-377.
Cashman, G. D., S. L. Gillan and C. Jun (2012). Going overboard? On busy directors and firm value,
Journal of Banking & Finance, 36, 3248–3259.
Christensen, D. M., Dhaliwal, D. S., Boivie, S., & Graffin, S. D. (2015). Top management conservatism
and corporate risk strategies: Evidence from managers' personal political orientation and
corporate tax avoidance. Strategic Management Journal, 36(12), 1918-1938.
Cooper, M. J., Gulen, H., & Ovtchinnikov, A. V. (2010). Corporate political contributions and stock
returns. The Journal of Finance, 65(2), 687-724.
Faccio, M. (2006). Politically connected firms. The American economic review, 96(1), 369-386.
Fahlenbrach, R., Low, A., & Stulz, R. M. (2010). Why do firms appoint CEOs as outside
directors?. Journal of Financial Economics, 97(1), 12-32.
Fahlenbrach, R., B.A. Minton and C.H. Pan (2011). Former CEO directors: lingering CEOs or valuable
resources? Review of Financial Studies, 24(10), 3486–3518.
Fisman, R. (2001). Estimating the value of political connections. The American economic review, 91(4),
1095-1102.
Fracassi, C., & Tate, G. (2012). External networking and internal firm governance. the Journal of
finance, 67(1), 153-194.
Francis, B. B., Hasan, I., Sun, X., & Wu, Q. (2016). CEO political preference and corporate tax
17
sheltering. Journal of Corporate Finance, 38, 37-53.
Gimpel, J. G., Lee, F. E., & Kaminski, J. (2006). The political geography of campaign contributions in
American politics. Journal of Politics, 68(3), 626-639.
Gordon, S. C., Hafer, C., & Landa, D. (2007). Consumption or investment? On motivations for political
giving. Journal of Politics, 69(4), 1057-1072.
Goldman, E., Rocholl, J., & So, J. (2008). Do politically connected boards affect firm value?. The
Review of Financial Studies, 22(6), 2331-2360.
Greene, W. H. (1994). Accounting for excess zeros and sample selection in Poisson and negative
binomial regression models.
Harford, J. and R.J. Schonlau (2013). Does the director labor market offer ex post settling-up for CEOs?
The case of acquisitions, Journal of Financial Economics, 110, 18–36.
Hong, H., & Kostovetsky, L. (2012). Red and blue investing: Values and finance. Journal of Financial
Economics, 103(1), 1-19.
Hutton, I., Jiang, D., & Kumar, A. (2014). Corporate policies of Republican managers. Journal of
Financial and Quantitative Analysis, 49(5-6), 1279-1310.
Jiraporn, P., M. Singh and C. Lee (2009). Ineffective corporate governance. Director
busyness and board committee memberships, Journal of Banking and Finance, 33, 819–828.
Kim, C. F., Pantzalis, C., & Park, J. C. (2012). Political geography and stock returns: The value and
risk implications of proximity to political power. Journal of Financial Economics, 106(1), 196-
228.
Lee, C. (2011). New evidence on what happens to CEOs after they retire. Journal of Corporate
Finance, 17(3), 474-482.
Lee, J., Lee, K. J., & Nagarajan, N. J. (2014). Birds of a feather: Value implications of political
alignment between top management and directors. Journal of Financial Economics, 112(2), 232-
250.
Leuz, C., & Oberholzer-Gee, F. (2006). Political relationships, global financing, and corporate
transparency: Evidence from Indonesia. Journal of financial economics, 81(2), 411-439.
Linck, J. S., Netter, J. M., & Yang, T. (2008). The effects and unintended consequences of the Sarbanes-
Oxley Act on the supply and demand for directors. The Review of Financial Studies, 22(8), 3287-
3328.
Liu, Y. (2014). Outside options and CEO turnover: The network effect, 28, 201–217.
18
Liu, B., J. J. McConnell and W. Xu (2017). The power of the pen reconsidered: The media, CEO human
capital, and corporate governance, Journal of Banking and Finance, 76, 175–188.
Naveen, L. (2006). Organizational Complexity and Succession Planning, Journal Of Financial and
Quantitative Analysis, 41(3), 661-683.
Ovtchinnikov, A. V., & Pantaleoni, E. (2012). Individual political contributions and firm
performance. Journal of Financial Economics, 105(2), 367-392.
Tam Cho, W. K. (2003). Contagion effects and ethnic contribution networks. American Journal of
Political Science, 47(2), 368-387.
Unsal, O., Hassan, M. K., & Zirek, D. (2016). Corporate lobbying, CEO political ideology and firm
performance. Journal of Corporate Finance, 38, 126-149.
Yu, F., & Yu, X. (2011). Corporate lobbying and fraud detection. Journal of Financial and Quantitative
Analysis, 46(6), 1865-1891.
19
Table I.
Description of Variables
This table shows the definition of main variables in our paper. For instance, Dn2, and Dn3 stand for number of
outside directorships for 1, 2 and 3 years after leaving office. Dnr2, and Dnr3 stand for number of outside
directorships in the regulated industries, SIC 2-digit code is 49 (utility), 60 (depository institution), and 63
(insurance), for 1, 2 and 3 years after leaving office. Dner2, and Dner3 stand for No. of outside directorships in
the extended regulated industries, financial (44, 45, 47) / utilities (31) as well as pharmaceutical (12, 13) /
communication (32) / defense based on Fama-French 48 industrial code, for 1, 2 and 3 years after leaving office.
Rel is an individual CEO’s political preference index, contribution amounts to Republicans minus Democrats
divided both parties’ contributions during 2003-2014. Rep_Dummy takes value 1 if Rel=1. Rep_Dummy takes
value 0 if Rel=-1. If Rel is 1, we consider “Republican Partisan”. If Rel is -1, we consider “Democratic Partisan”.
Rea is an individual CEO’s total contribution amount to Republican Party ($) during 2003-2014, and Dea is an
individual CEO’s total contribution amount to Democratic Party ($) during 2003-2014. CEO characteristics are
tenure period of CEO in office (yrs.), CEO compensation for averaged 4 years before retired (thousands), and age
when CEO retired. Financial characteristics are assets of firm for averaged 4 years before retired (millions),
abnormal stock return for averaged 4 years (%), return of assets of CEO company for averaged 4 years before
retired (%), and dummy, one for 49(utility), 60(depository institution), and 63(insurance) of SIC code at the firm
of CEO. Variable Symbol
Political Contribution:
No. of outside directorships for 2 years after leaving office Dn2
No. of outside directorships for 3 years after leaving office Dn3
No. of outside directorships in regulated industries for 2 years after leaving office Dnr2
No. of outside directorships in regulated industries for 3 years after leaving office Dnr3
No. of outside directorships in extended regulated industries for 2 years after leaving Dner2
No. of outside directorships in extended regulated industries for 3 years after leaving Dner3
Contribution amounts to Republicans minus Democrats divided both parties’ contributions Rel
Rep_Dummy takes value 1 if Rel=1. Rep_Dummy takes value 0 if Rel=-1. Rep_Dummy
Contribution amount to Republican party ($) Rea
Contribution amount to Democratic party ($) Dea
CEO characteristics:
Tenure period of CEO in office (yrs.) Tenure
CEO compensation for averaged 4 years before retired (thousands) Pay
Age when CEO retired Age
Firm characteristics:
Assets of firm for averaged 4 years before retired (millions) Ast
Ln (assets): natural log value of assets Lna
Abnormal stock return for averaged 4 years before retired (%) Asr
Return of assets of CEO company averaged 4 years before retired (%) Roa
Adjusted Roa = return of assets of company - average of return of assets for SIC industry Roaj
Dummy, one for 49(utility), 60(depository institution), and 63(insurance) of SIC code Dmi
20
Table II
Summary Statistics
This table shows the summary statistics for main variables. For instance, Dn1, Dn2, and Dn3 stand for No. of
outside directorships for 1, 2 and 3 years after leaving office. The mean of Dn1, Dn2, and Dn3 is 0.64, 0.71,
and 0.72, respectively. Rel is an individual CEO’s political preference index, contribution amounts to
Republicans minus Democrats divided both parties’ contributions during 2003-2014. The mean of Rel is 0.14,
which is larger than 0. Rea is an individual CEO’s total contribution amount to Republican Party ($) during
2003-2014, and Dea is an individual CEO’s total contribution amount to Democratic Party ($) during 2003-
2014. The mean of Rea and Dea is ($) 3,912.83 and ($) 2,912.50, respectively.
Variable Mean Median Min Max Std.Dev. N
Dn2 0.71 0.00 0.00 5.00 0.91 555
Dn3 0.72 0.00 0.00 4.00 0.92 499
Rel 0.14 0.37 -1.00 1.00 0.87 555
Rea($) 3,912.83 1,500.00 0.00 62,250.00 6,883.90 555
Dea($) 2,912.50 1,000.00 0.00 80,100.00 6,188.91 555
Tenure 12.26 10.00 2.00 46.00 7.94 555
Ast($Millions) 39,166.58 3,233.05 80.76 1,878,618.00 169,866.40 553
Asr(%) 24.98 3.77 -98.39 4773.28 232.22 545
Roa(%) 4.15 3.80 -42.89 38.53 7.07 553
Pay($Millions) 7,351.25 4,814.85 217.89 77,068.88 7,876.79 542
Age 60.30 61.00 35.00 90.00 7.39 555
Dmi 0.18 0.00 0.00 1.00 0.38 555
21
Figure 1. Distribution of Political Preference.
Figure 1 shows the retired CEOs’ Rel distribution. Rel means as follows. Rel = (Donation to Republicans -
Donation to Democrats) / (Donation to Both Parties).
22
Table III
Distribution of Political Preference
Panel A presents the retired CEOs’ Rel distribution. Rel means as follows. Rel = (Donation to Republicans -
Donation to Democrats) / (Donation to Both Parties). If Rel is 1, we consider “Republican Partisan”. If Rel is -1,
we consider “Democratic Partisan”.
Panel A Mean Median Std.Dev N
Rel 0.14 0.37 0.87 555
Distribution Republican
Partisan
Democratic
Partisan In-between N
227
(40.90%)
163
(29.37%)
165
(29.73%)
555
Panel B presents the retired CEOs’ Rel distribution under Republican regime or Democratic regime. Rel means
as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation to Both Parties). If Rel is 1, we
consider “Republican Partisan”. If Rel is -1, we consider “Democratic Partisan”.
No. of Retired CEOs by Rel
distribution
Total
Republican Regime
based on the retired
year
Democratic Regime
based on the retired
year
N % N % N %
-1 ≤ REL ≤ 1 555 100.00% 213 100.00% 342 100.00%
REL = 1 227 40.90% 99 46.48% 128 37.43%
0 < REL ≤ 1 317 57.12% 130 61.03% 187 54.68%
0.25 ≤ REL ≤ 1 294 52.97% 119 55.87% 175 51.17%
REL = 0 9 1.62% 7 3.29% 2 0.58%
-0.25 < REL < 0.25 53 9.55% 24 11.27% 29 8.48%
-1 ≤ REL ≤ -0.25 208 37.48% 70 32.86% 138 40.35%
-1 ≤ REL < 0 229 41.26% 76 35.68% 153 44.74%
REL = -1 163 29.37% 54 25.35% 109 31.87%
23
Table IV
Political Preference or Strategic Behavior: Political Contribution Relative
to CEO Compensation
Convpay means the 1-year averaged political contribution amount divided by 1-year averaged CEO Compensation
during CEO tenure for each retired CEO. For instance, a retired CEO from Wal-Mart contributed $1,000 per year
and his CEO compensation during Wal-Mart CEO position was $1,000,000 per year. Then, Convpay is 0.1%. The
averaged portion of political contribution on CEO Compensation is 0.03% in the full sample.
Mean Median Min Max Std.Dev. N
Convpay (%) 0.03 0.01 0.00 2.10 0.10 542
24
Table V
Political Preference or Strategic Behavior: Donation Behavior Changes
Under Different Ruling Parties
Table V presents the donation behavior under different political regimes. Rel Republican Regime is an individual
CEO’s Rel during Republican regime (2003-2008) and Rel Democratic Regime is an individual CEO’s Rel during
Democratic regime (2009-2014). Rel Republican Regime is calculated by (Donation to Republicans - Donation
to Democrats) during Republican regime / (Donation to Both Parties) Republican regime. Rel Democratic Regime
is calculated by (Donation to Republicans - Donation to Democrats) during Democratic regime / (Donation to
Both Parties) Democratic regime. The unpaired sample is for the full sample and paired sample for the same
retired CEOs on Republican regime and Democratic regime, respectively. Significant differences at the 1%, 5%,
and 10% levels are indicated by ***, **, and *, respectively.
Mean Std.Dev. N
Unpaired Sample
Rel Republican Regime 0.18* 0.88 398
Rel Democratic Regime 0.09 0.90 326
Mean Difference 0.09
Paired Sample
Rel Republican Regime 0.20 0.84 169
Rel Democratic Regime 0.14 0.86 169
Mean Difference 0.06
25
Table VI
Political Preference or Strategic Behavior: Donation Behavior Changes
Under Different Ruling Parties
Table VI presents the number of retired CEO who changed political preference across the ruling party. Rel means
as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation to Both Parties). Significant
differences at the 1%, 5%, and 10% levels are indicated by ***, **, and *, respectively.
No. of Retired CEO who changed political preference across
the ruling party N %
Republican Regime: Rel > 0
(2003 ~ 2008)
Democratic Regime
(2009~2014)
Rel > 0 74 45.12
Rel < 0 26 15.85
Republican Regime: Rel < 0
(2003 ~ 2008)
Democratic Regime
(2009~2014)
Rel < 0 43 26.22
Rel > 0 21 12.80
Total 164 100.00
No. of Retired Partisan CEO who changed political preference based
on the ruling party N %
Republican Regime: Rel = 1
(2003 ~ 2008)
Democratic Regime
(2009~2014)
Rel = 1 47 53.41
Rel = -1 11 12.50
Republican Regime: Rel = -1
(2003 ~ 2008)
Democratic Regime
(2009~2014)
Rel = -1 24 27.27
Rel = 1 6 6.82
Total 88 100.00
26
Table VII
Post-Retirement Outside Directorships
This table shows the post-retirement outside directorships. Dn2, and Dn3 stand for No. of outside directorships
for 2 and 3 years after leaving office. In the full sample, the mean of Dn2, and Dn3 is 0.71, and 0.72, respectively.
Republican partisan CEOs hold 0.69, and 0.73 post-retirement outside directorships, on average. Democratic
partisan CEOs 0.66 and 0.64 post-retirement outside directorships, on average. There is no statistically significant
mean-difference between Republican partisan and Democratic partisan.
Mean in the
full sample
Republican
partisan
sample
N
Democratic
partisan
sample
N Mean
Difference
Dn2 0.71 0.69 227 0.66 163 0.03
Dn3 0.72 0.73 206 0.64 143 0.08
27
Table VIII
Regression Results for Post-Retirement outside Directorships: 2 Years After
Retirement
This table reports ordered logit estimates. The dependent variable is Dn2, No. of outside directorships for 2 years
after leaving office. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation
to Both Parties). Rep_Dummy takes value 1 if Rel is 1. Rep_Dummy takes value 0 if Rel is -1. Lna is the log
value of average assets of firm for 4 years before retired. Asr is averaged abnormal stock return for 4 years. Roaj
is averaged adjusted Roa for 4 years, which is return of assets of company minus average of return of assets for
SIC industry. Dmi is a dummy variable taking value 1 for 49(utility), 60(depository institution), and 63(insurance)
of SIC code, otherwise, 0. P-values are in parentheses. Significant differences at the 1%, 5%, and 10% levels are
indicated by ***, **, and *, respectively.
(1) (2) (3) (4)
Rel 0.073 0.082
(0.452) (0.401)
Rep_Dummy 0.107 0.124
(0.611) (0.554)
Lna 0.211*** 0.212*** 0.247*** 0.247***
(0.000) (0.000) (0.000) (0.000)
Asr -0.000* -0.000* -0.000* -0.000**
(0.067) (0.063) (0.051) (0.050)
Roaj 0.007 0.007 -0.004 -0.004
(0.573) (0.574) (0.766) (0.752)
Dmi -0.115 -0.084 -0.238 -0.214
(0.626) (0.724) (0.402) (0.451)
Time Trend 0.040 0.032
(0.145) (0.334)
Obs 546 546 384 384
Pseudo R2 0.019 0.021 0.023 0.024
28
Table IX
Regression Results for Post-Retirement outside Directorships: 3 Years After
Retirement
This table reports ordered logit estimates. The dependent variable is Dn3, No. of outside directorships for 3 years
after leaving office. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation
to Both Parties). Rep_Dummy takes value 1 if Rel is 1. Rep_Dummy takes value 0 if Rel is -1. Lna is the log
value of average assets of firm for four years before retired. Asr is averaged abnormal stock return for four years.
Roaj is averaged adjusted Roa for four years, which is return of assets of company minus average of return of
assets for SIC industry. Dmi is a dummy variable taking value 1 for 49(utility), 60(depository institution), and
63(insurance) of SIC code, otherwise, 0. P-values are in parentheses. Significant differences at the 1%, 5%, and
10% levels are indicated by ***, **, and *, respectively.
(1) (2) (3) (4)
Rel 0.128 0.142
(0.214) (0.170)
Rep_Dummy 0.313 0.338
(0.173) (0.139)
Lna 0.216*** 0.221*** 0.267*** 0.271***
(0.000) (0.000) (0.000) (0.000)
Asr -0.000 -0.000 -0.000 -0.000
(0.368) (0.329) (0.375) (0.359)
Roaj 0.006 0.006 -0.010 -0.010
(0.691) (0.656) (0.497) (0.516)
Dmi 0.223 0.242 0.064 0.080
(0.315) (0.277) (0.814) (0.769)
Time Trend 0.050 0.044
(0.110) (0.233)
Obs 491 491 344 344
Pseudo R2 0.025 0.027 0.033 0.035
29
Figure 2. Post-Retirement outside Directorships. It shows a fitted line: the outside directorships 2 years after retirement (Dn2) for Republican and Democratic
partisans under Republican regime and Democratic regime.
30
Figure 3. Post-Retirement outside Directorships. It shows a fitted line: the outside directorships 3 years after retirement (Dn3) for Republican and Democratic
partisans under Republican regime and Democratic regime.
31
Table X
Post-Retirement outside Directorships:
Republican Regime vs. Democratic Regime
This table shows the mean of outside directorships 2 and 3 years after retirement, Dn2, and Dn3 for Republican
and Democratic partisans under Republican regime and Democratic regime. Significant differences at the 1%, 5%,
and 10% levels are indicated by ***, **, and *, respectively.
Republican Regime Democratic Regime
(George Walker Bush,
2003~2008) N
(Barack Hussein
Obama, Jr.
2009~2014)
N
Panel A: 2 Years after
Retirement (Dn2)
Republican Partisan 0.82** 57 0.65 170
Democratic Partisan 0.35 26 0.72 137
Mean Difference 0.48 -0.08
Panel B: 3 Years after
Retirement (Dn3)
Republican Partisan 0.83*** 40 0.70 166
Democratic Partisan 0.13 16 0.71 127
Mean Difference 0.70 0.00
32
Table XI
Regression Results for Post-Retirement Outside Directorships: 2 Years After Retirement under
Republican vs. Democratic Regime This table reports regression results. The specification (1) and (4) are ordered logit estimates in the full sample. The specification (2) and (5) are zero-inflated
passion model in the full sample. The specification (3) and (6) are ordered logit estimates in the sub-sample. The dependent variable is Dn2, No. of outside
directorships for 2 years after leaving office. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation to Both Parties).
Rep_Dummy takes value 1 if Rel is 1. Rep_Dummy takes value 0 if Rel is -1. Rep_reg_Dummy takes value 1 if a year of holding outside directorship is
under a Republican regime, otherwise, 0. Lna is the log value of average assets of firm for 4 years before retired. Asr is averaged abnormal stock return for 4
years. Roaj is averaged adjusted Roa for 4 years, which is return of assets of company minus average of return of assets for SIC industry. Dmi is a dummy
variable taking value 1 for 49(utility), 60(depository institution), and 63(insurance) of SIC code, otherwise, 0. P-values are in parentheses. Significant
differences at the 1%, 5%, and 10% levels are indicated by ***, **, and *, respectively.
Dependent variable: Dn2 (1) (2) (3) (4) (5) (6)
Ologit ZIP Ologit Ologit ZIP Ologit
Rel 0.023 -0.019 -0.301**
(0.828) (0.787) (0.026)
Rep_Dummy -0.076 -0.108 -0.803** (0.738) (0.465) (0.012)
Rep_reg_Dummy 0.057 0.079 0.560 -0.756 -0.625 -1.064 (0.865) (0.710) (0.206) (0.188) (0.136) (0.202)
Rel*Rep_reg_Dummy 0.323 0.255 0.716**
(0.233) (0.134) (0.050)
Rep_Dummy*Rep_reg_Dummy 1.140* 0.911** 2.243** (0.057) (0.029) (0.011)
Lna 0.209*** 0.066* 0.235*** 0.238*** 0.099** 0.269*** (0.000) (0.059) (0.001) (0.000) (0.027) (0.004)
Asr -0.000** -0.000** -0.001*** -0.000** -0.000** -0.001*** (0.047) (0.033) (0.000) (0.032) (0.023) (0.000)
Roaj 0.008 0.006 -0.008 -0.002 -0.001 -0.018 (0.528) (0.473) (0.561) (0.865) (0.893) (0.271)
Dmi -0.073 0.018 0.495 -0.201 -0.085 0.238
33
(0.760) (0.898) (0.097) (0.486) (0.617) (0.518)
Time Trend 0.054 0.030 0.081 0.034 0.015 0.023 (0.156) (0.211) (0.087) (0.471) (0.613) (0.719)
Inflate
Lna -0.697** -0.725**
(0.014) (0.030)
Obs 546 546 315 384 384 212
R2 0.022 0.048 0.040 0.029 0.065 0.058
34
Table XII
Regression Results for Post-Retirement Outside Directorships: 3 Years After Retirement under
Republican vs. Democratic Regime
This table reports regression results. The specification (1) and (4) are ordered logit estimates in the full sample. The specification (2) and (5) are zero-inflated
passion model in the full sample. The specification (3) and (6) are ordered logit estimates in the sub-sample. The dependent variable is Dn3, No. of outside
directorships for 3 years after leaving office. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation to Both Parties).
Rep_Dummy takes value 1 if Rel is 1. Rep_Dummy takes value 0 if Rel is -1. Rep_reg_Dummy takes value 1 if a year of holding outside directorship is
under a Republican regime, otherwise, 0. Lna is the log value of average assets of firm for 4 years before retired. Asr is averaged abnormal stock return for 4
years. Roaj is averaged adjusted Roa for 4 years, which is return of assets of company minus average of return of assets for SIC industry. Dmi is a dummy
variable taking value 1 for 49(utility), 60(depository institution), and 63(insurance) of SIC code, otherwise, 0. P-values are in parentheses. Significant
differences at the 1%, 5%, and 10% levels are indicated by ***, **, and *, respectively.
Dependent variable: Dn3 (1) (2) (3) (4) (5) (6)
Ologit ZIP Ologit Ologit ZIP Ologit
Rel 0.060 -0.011 -0.318**
(0.587) (0.876) (0.024)
Rep_Dummy 0.120 -0.050 -0.808** (0.623) (0.741) (0.016)
Rep_reg_Dummy -0.471 -0.298 -0.456 -1.781** -1.721** -2.761*** (0.255) (0.298) (0.399) (0.040) (0.014) (0.005)
Rel*Rep_reg_Dummy 0.728** 0.524** 1.220**
(0.038) (0.032) (0.011)
Rep_Dummy*Rep_reg_Dummy 2.065** 1.917*** 3.525*** (0.019) (0.006) (0.001)
Lna 0.219*** 0.050 0.297*** 0.272*** 0.076* 0.313*** (0.000) (0.162) (0.000) (0.000) (0.094) (0.002)
Asr -0.000 -0.000 -0.001 -0.000 -0.000 -0.001 (0.305) (0.329) (0.441) (0.351) (0.293) (0.308)
Roaj 0.008 0.010 0.007 -0.007 0.002 -0.006 (0.571) (0.263) (0.672) (0.635) (0.828) (0.782)
Dmi 0.233 0.128 0.285 0.051 -0.021 -0.013 (0.308) (0.329) (0.290) (0.857) (0.894) (0.969)
35
Time Trend 0.035 0.020 0.053 0.027 0.013 0.043 (0.395) (0.458) (0.310) (0.584) (0.679) (0.532)
Inflate
Lna -0.881*** -0.947***
(0.002) (0.001)
Obs 491 491 279 344 344 187
R2 0.031 0.068 0.050 0.044 0.101 0.065
36
Table XIII
Instrument Variable: Republican Win State vs. Democratic Win State where HQ are located
Rel Republican Win State is a Rel of CEO who works at a firm where a headquarters is located in a state a Republican candidate wins in the 2004, 2008 and
2012 president election. Rel Democratic Win State is a Rel of CEO who works at a firm where a headquarters is located in a state a Democratic candidate
wins in the 2004, 2008 and 2012 president election. Significant differences at the 1%, 5%, and 10% levels are indicated by ***, **, and *, respectively.
Mean Std. Dev. N
Panel A: 2004 President Election
Rel Republican Win State 0.38*** 0.79 269
Rel Democratic Win State -0.10 0.88 283
Mean Difference 0.48
Panel B: 2008 President Election
Rel Republican Win State 0.41*** 0.79 146
Rel Democratic Win State 0.04 0.88 406
Mean Difference 0.38
Panel C: 2012 President Election
Rel Republican Win State 0.44*** 0.78 169
Rel Democratic Win State 0.00 0.88 383
Mean Difference 0.43
37
Table XIV
2-Stage Regression with Instrumental Variable
This table estimates 2-stage regression models by using an instrumental variable to address potential concerns about endogeneity problem. We instrument
“Rep_Dummy” with the regional political preference. The specification (1) and (5) are 2-stage ordered logit estimates in the full sample. The specification
(2) and (6) are 2-stage zero-inflated possion model in the full sample. The specification (3) and (7) are 2-stage ordered logit estimates in the sub-sample. The
specification (4) and (8) are 2-stage OLS estimates in the sub-sample. The dependent variables are No. of outside directorships for 1, 2, and 3 years after
leaving office. Rep_Dummy takes value 1 if Rel is 1. Rep_Dummy takes value 0 if Rel is -1. Rep_reg_Dummy takes value 1 if a year of holding outside
directorship is under a Republican regime, otherwise, 0. Lna is the log value of average assets of firm for 4 years before retired. Asr is averaged abnormal
stock return for 4 years. Roaj is averaged adjusted Roa for 4 years, which is return of assets of company minus average of return of assets for SIC industry.
Dmi is a dummy variable taking value 1 for 49(utility), 60(depository institution), and 63(insurance) of SIC code, otherwise, 0. P-values are in parentheses.
Significant differences at the 1%, 5%, and 10% levels are indicated by ***, **, and *, respectively.
(5) (6) (7) (8) (9) (10) (11) (12)
Dn2
2s-Ologit 2s-ZIP 2s-Ologit 2s-OLS 2s-Ologit 2s-ZIP 2s-Ologit 2s-OLS
Rep_Dummy -0.457 -0.559 -1.475 -0.602 -0.572 -0.631 -2.067* -0.820*
(0.533) (0.246) (0.132) (0.126) (0.475) (0.224) (0.070) (0.074)
Rep_reg_Dummy -0.655 -0.959 -2.711 -1.425* -2.669 -1.697* -4.593** -1.921**
(0.665) (0.299) (0.135) (0.098) (0.128) (0.078) (0.029) (0.025)
Rep_Dummy*Rep_reg_Dummy 1.043 1.550 4.848* 2.386* 3.726 2.381* 6.754** 2.789**
(0.638) (0.249) (0.068) (0.067) (0.137) (0.072) (0.017) (0.019)
Lna 0.243*** 0.103** 0.286*** 0.120*** 0.277*** 0.078* 0.340*** 0.143***
(0.000) (0.018) (0.001) (0.001) (0.000) (0.084) (0.001) (0.000)
Asr -0.000** -0.000** -0.001*** -0.000*** -0.000 -0.000 0.000 0.000
(0.043) (0.022) (0.005) (0.006) (0.240) (0.305) (0.639) (0.828)
Roaj -0.003 -0.002 -0.024 -0.011 -0.007 0.002 -0.010 -0.003
(0.824) (0.789) (0.147) (0.121) (0.670) (0.858) (0.650) (0.659)
Dmi -0.202 -0.083 0.230 0.112 0.101 0.015 -0.024 -0.009
38
(0.477) (0.622) (0.541) (0.485) (0.712) (0.925) (0.944) (0.949)
Time Trend 0.028 0.009 0.003 0.002 0.021 0.007 0.026 0.009
(0.563) (0.758) (0.959) (0.927) (0.669) (0.829) (0.699) (0.738)
Inflate
Lna -0.685** -0.911***
(0.039) (0.001)
Obs 384 384 212 212 344 344 187 187
39
Table XV
Post-Retirement Outside Directorships in Regulated Industries
Regulated industries related to the political regulation to financial (44, 45, 47) / utilities (31) as well as pharmaceutical (12, 13) / communication (32) / defense
based on Fama-French 48 industrial code. Significant differences at the 1%, 5%, and 10% levels are indicated by ***, **, and *, respectively.
Republican Regime Democratic Regime
(George Walker Bush, 2003~2008) (Barack Hussein Obama, Jr. 2009~2014)
Regulated
Industry
Unregulated
Industry
Regulated
Industry
Unregulated
Industry
Regulated
Industry
Unregulated
Industry
Mean N Mean N Mean N Mean N Mean Difference
Panel A: 2 Years after
Retirement (Dn2)
Republican Partisan 0.19 57 0.63** 57 0.19 170 0.46 170 0.00 0.17*
Democratic Partisan 0.12 26 0.23 26 0.26** 137 0.46 137 -0.15* -0.23*
Mean Difference 0.08 0.40 -0.07 0.00
Panel B: 3 Years after
Retirement (Dn3)
Republican Partisan 0.23** 40 0.60*** 40 0.20 166 0.50 166 0.02 0.10
Democratic Partisan 0.00 16 0.13 16 0.24 127 0.47 127 -0.24** -0.35**
Mean Difference 0.23 0.48 -0.03 0.03
40
Table XVI
Political Preference Difference: Newly Appointed CEOs Across Ruling
Parties
This table summarizes the political preference of newly appointed 1, 292 CEOs under Republican or Democratic
party across 2003-2014 sample period from the CEOs’ contribution data in FEC. From this database, we extract
the political preference for newly appointed CEOs by the contribution pattern. New CEO Rel Republican Regime
is Rel of 698 newly appointed CEOs under a Republican regime. New CEO Rel Democratic Regime is Rel of 594
newly appointed CEOs under a Democratic regime. Rel means as follows. Rel = (Donation to Republicans -
Donation to Democrats) / (Donation to Both Parties).
Mean Std.Dev. N
New CEO Rel Republican
Regime 0.128 0.033 698
New CEO Rel Democratic
Regime 0.124 0.036 594
Mean Difference 0.004
41
Table XVII
Political Preference Difference: Newly Appointed CEOs Across Ruling Parties
Panel A summarizes the political preference of newly appointed 1, 292 CEOs under Republican or Democratic Party across 2003-2014 sample period from
the CEOs’ contribution data in FEC. From this database, we extract the political preference for newly appointed CEOs by the contribution pattern. Panel A
presents the newly appointed CEOs’ Rel during 2003 to 2014. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation
to Both Parties).
Panel A
Total REL=1 0<REL≤1 0.25≤REL≤1 -0.25<REL<0.25 -1≤REL≤-0.25 -1≤REL<0 REL=-1
CEO No. 1,292 514 729 685 103 504 549 375
% 0.398 0.564 0.530 0.080 0.390 0.425 0.290
Panel B summarizes the political preference of newly appointed 698 CEOs under Republican Party across 2003-2008 sample period from the CEOs’
contribution data in FEC. From this database, we extract the political preference for newly appointed CEOs by the contribution pattern. Panel B presents the
newly appointed CEOs’ Rel when ruling party is a republic party. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) / (Donation
to Both Parties).
Panel B
Total REL=1 0<REL≤1 0.25≤REL≤1 -0.25<REL<0.25 -1≤REL≤-0.25 -1≤REL<0 REL=-1
CEO No. 698 273 394 373 58 267 295 202
% 0.391 0.564 0.534 0.083 0.383 0.423 0.289
Panel C summarizes the political preference of newly appointed 594 CEOs under Democratic Party across 2008-2014 sample period from the CEOs’
contribution data in FEC. From this database, we extract the political preference for newly appointed CEOs by the contribution pattern. Panel C presents the
newly appointed CEOs’ Rel when ruling party is a Democratic party. Rel means as follows. Rel = (Donation to Republicans - Donation to Democrats) /
(Donation to Both Parties).
42
Panel C
Total REL=1 0<REL≤1 0.25≤REL≤1 -0.25<REL<0.25 -1≤REL≤-0.25 -1≤REL<0 REL=-1
CEO No. 594 241 335 312 45 237 254 173
% 0.406 0.564 0.525 0.076 0.397 0.428 0.291
43
