Federal ID: 91-6001537
ISSN: 0022-1090 (Print) | 1756-6916 (Online)
Impact of Regulations on Firm Value: Evidence from the 2016 U.S. Presidential Election
Santanu Kundu
♦ Using the 2016 U.S. presidential election result as a shock to the expectations about the future regulatory environment, I find that most regulated firms earned approximately 4% higher cumulative abnormal stock returns than least regulated firms during the first 10 trading days after the election. Exploring economic mechanisms, I find evidence consistent with the explanation that more regulations disproportionately harm high-growth firms and allow incumbent firms to extract rents through lower competition and political favoritism. Stock returns are also followed by a shift in firm fundamentals over 3 years after 2016, consistent with the economic mechanisms.
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