Managerial Political Orientation and Stock Price Crash Risk

This article examines whether managers' political orientation, which reflects their risk preferences, is associated with firms' stock price crash risk. We find that stock price crash risk is lower when corporate managers have more conservative political ideologies, and the results are robust to controls for other determinants of crash risk. We use Heckman two-stage model and employ difference-in-differences research design around executive turnovers to show that our results are not simply driven by potential endogeneity. We also document that the relation between managerial political orientation and stock price crash risk is stronger when external monitoring is weaker.