From K Street to Wall Street

Political Connections and Stock Recommendations

Dane M. Christensen, Michael B. Mikhail, Beverly Rayburn Walther, Laura Wellman

Research output: Working paper

Abstract

In this study, we examine whether sell-side security analysts gain access to value relevant information through political connections. We measure analysts’ political connections based on political contributions at the brokerage house level. We argue that if brokerages are able to obtain private information through their political connections, analysts at politically connected brokerages should issue more profitable stock recommendations, and this increased profitability should be more pronounced for politically sensitive stocks. Our evidence is consistent with these predictions. Analyses of recommendations issued surrounding the Affordable Care Act further support our main inferences. Moreover, our findings hold after we employ numerous tests to address correlated omitted variables and endogeneity. Collectively, these results suggest that brokerages obtain value-relevant, non-public information from their political connections.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
StatePublished - Jun 1 2016

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Christensen, D. M., Mikhail, M. B., Walther, B. R., & Wellman, L. (2016). From K Street to Wall Street: Political Connections and Stock Recommendations. Social Science Research Network (SSRN).
Christensen, Dane M. ; Mikhail, Michael B. ; Walther, Beverly Rayburn ; Wellman, Laura. / From K Street to Wall Street : Political Connections and Stock Recommendations. Social Science Research Network (SSRN), 2016.
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Christensen, DM, Mikhail, MB, Walther, BR & Wellman, L 2016 'From K Street to Wall Street: Political Connections and Stock Recommendations' Social Science Research Network (SSRN).

From K Street to Wall Street : Political Connections and Stock Recommendations. / Christensen, Dane M.; Mikhail, Michael B.; Walther, Beverly Rayburn; Wellman, Laura.

Social Science Research Network (SSRN), 2016.

Research output: Working paper

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AU - Mikhail, Michael B.

AU - Walther, Beverly Rayburn

AU - Wellman, Laura

PY - 2016/6/1

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N2 - In this study, we examine whether sell-side security analysts gain access to value relevant information through political connections. We measure analysts’ political connections based on political contributions at the brokerage house level. We argue that if brokerages are able to obtain private information through their political connections, analysts at politically connected brokerages should issue more profitable stock recommendations, and this increased profitability should be more pronounced for politically sensitive stocks. Our evidence is consistent with these predictions. Analyses of recommendations issued surrounding the Affordable Care Act further support our main inferences. Moreover, our findings hold after we employ numerous tests to address correlated omitted variables and endogeneity. Collectively, these results suggest that brokerages obtain value-relevant, non-public information from their political connections.

AB - In this study, we examine whether sell-side security analysts gain access to value relevant information through political connections. We measure analysts’ political connections based on political contributions at the brokerage house level. We argue that if brokerages are able to obtain private information through their political connections, analysts at politically connected brokerages should issue more profitable stock recommendations, and this increased profitability should be more pronounced for politically sensitive stocks. Our evidence is consistent with these predictions. Analyses of recommendations issued surrounding the Affordable Care Act further support our main inferences. Moreover, our findings hold after we employ numerous tests to address correlated omitted variables and endogeneity. Collectively, these results suggest that brokerages obtain value-relevant, non-public information from their political connections.

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Christensen DM, Mikhail MB, Walther BR, Wellman L. From K Street to Wall Street: Political Connections and Stock Recommendations. Social Science Research Network (SSRN). 2016 Jun 1.