Corporate campaign contributions and abnormal stock returns after presidential elections

Abstract

In the U.S. campaign contributions by companies play a major role in financing election campaigns. We analyze contributions by companies before an election and stock market performance after the election for the presidential elections from 1992 until 2004. We find that (i) the percentage of contributions given to the winner in a presidential election and (ii) the total contribution (divided by market capitalization) have a significant positive impact on a company's stock market performance after an election, with the second factor being more important. Furthermore, we find that hypothetical portfolios of the 30 highest contributors according to (i) would have earned significant abnormal returns of up to 0.54% per month (6.6% p.a.) during the first year after an election. Investing in a portfolio formed according to (ii) would have yielded abnormal returns of up to 1.21% per month (15.5% p.a.) for the same observation period.Presidential Election, Corporate Campaign Contributions, Abnormal Returns