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Publication date: 12 October 2015

Scott Beyer, Luis Garcia-Feijoo, Gerry Jensen and Robert R. Johnson

The purpose of this paper is to analyze security-market returns relative to the political party of the president, the Federal Reserve’s monetary policy, the year of the…

204

Abstract

Purpose

The purpose of this paper is to analyze security-market returns relative to the political party of the president, the Federal Reserve’s monetary policy, the year of the president’s term, and the state of political gridlock. Contrary to prior studies, which evaluated the influences separately, the authors jointly evaluate these variables.

Design/methodology/approach

The analysis supports the notion that security returns are significantly related to shifts in Fed monetary policy, political gridlock, and the year of the presidential term; however, returns are generally invariant to the president’s political party affiliation. Overall, the findings suggest that investors should focus less attention on the party of the president and instead more closely monitor Fed actions.

Findings

It appears that political harmony should be welcomed by equity investors, but not debt investors. Finally, regardless of the political outcome, if the past serves as a guide, investors may have to wait until year three of the next presidential term to enjoy the fruits of the current political season.

Originality/value

The academic literature is rich with studies that consider the aforementioned political effects and the influence that monetary policy have on the markets. To date, however, these factors have not been jointly considered when examining returns. This paper considers several dimensions of the political landscape – the party of the president, the presence or absence of political gridlock, and the presidential term cycle effect – in conjunction with Fed monetary policy in examining long-term security returns. By examining the relationship between security returns and both political and monetary conditions, the authors provide robust evidence regarding the relationships.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Available. Content available

Abstract

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2015

J. Christopher Hughen and Scott Beyer

In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine return…

2439

Abstract

Purpose

In the increasingly globalized economy, foreign exchange fluctuations have multiple, conflicting effects on domestic stock prices. The purpose of this paper is to examine return data to determine the relation between the dollar’s value and stock prices as it relates to monetary policy.

Design/methodology/approach

The authors examine US stock returns over a 40-year period, which is classified according to monetary policy and dollar trend. To better understand the impact of foreign exchange fluctuations, the authors estimate a model of stock returns using the three Fama-French factors and a momentum factor. Then the authors explore the underlying economic fundamentals that drive the sharp difference in annual returns between periods when the dollar is in an uptrend trend with loose monetary policy and periods when the dollar is in a downtrend with tight monetary policy.

Findings

Over the last 40 years, US stock returns were 2.5 times higher when the dollar was trending up vs down. The factor model of returns shows that equity returns are positively associated with periods when the dollar appreciated. Returns were particularly high when the dollar was in an uptrend during accommodative monetary policy. During these periods, stocks in the consumer goods and services industries provided relatively high returns. This occurred with strong economic growth due to consumer spending. Stocks exhibited the lowest returns when the dollar was depreciating and the Federal Reserve was tightening.

Originality/value

The key contribution of the research is that currency trends should be analyzed in the light of monetary policy. During periods of accommodative monetary policy and dollar appreciation, the US stock market provided average returns of 18.7 percent compared to −3.29 percent during a period of restrictive monetary policy and dollar depreciation. This result is driven by stronger economic growth, which is composed of consumer spending that more than offsets the dollar’s impact on net exports.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2015

Jeffery Scott Bredthauer, Brian C. Payne, Jiri Tresl and Gordon V. Karels

The purpose of this paper is to investigate the absolute and risk-adjusted stock return performance of the US health care industry conditional upon the presidential…

292

Abstract

Purpose

The purpose of this paper is to investigate the absolute and risk-adjusted stock return performance of the US health care industry conditional upon the presidential administration’s political party and the Federal Reserve’s monetary policy stance. It evaluates this return behavior across the 60-year time period from 1954 to 2013, and sub-divides this entire period into the pre-Medicare period (1954-1964), Medicare period (1965-1984), and Medicare-plus-high-health-care-inflation period (1985-2013).

Design/methodology/approach

The study uses monthly returns to the health care industry and overall market, characterizing each sample month as either having a Republican or Democratic president and either a contractionary or expansionary monetary policy regime determined by whether the Federal Reserve is increasing or decreasing interest rates, respectively. It incorporates univariate and multivariate analysis to quantify the return behavior of both the health care industry and the overall market during the entire period and all three sub-periods. Additionally, it utilizes a common four-factor multivariate regression model and associated hypothesis testing to characterize risk-adjusted excess returns (i.e. α) to the health care industry during the entire period and all three sub-periods.

Findings

The health care industry has earned robust, positive risk-adjusted returns with the magnitude of the returns sensitive to the political party of the administration and the monetary policy regime. The authors find that prior to 1965 (1954-1964), when the president was a Republican, during times of monetary contraction, health care earned an excess risk-adjusted return. There was no association between Democratic administrations and excess health care returns prior to 1965. In contrast, the authors find that after 1965 this relationship changes. The authors find that returns to health care were positive for Republicans during times of monetary expansion and positive for Democrats during monetary contraction. The authors also find this relationship has become more pronounced after 1984.

Originality/value

The study extends prior literature, which has shown that the health care industry is a priced factor in the US stock market and that it provides significant risk-adjusted returns in the recent past. Uniquely, this study shows that the excess returns to health care vary considerably over the past 60 years, and that these excess returns are quite sensitive to political policy, proxied by the presidential administration party, and monetary policy, as measured using Fed discount rate changes. These findings have implications for management and shareholders of highly regulated and subsidized industries and firms.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2015

Chris B Malone, Hamish Anderson and Peng Cheng

The purpose of this paper is to use firm-level data to examine whether the political cycle differentially relates to small vs large firms in New Zealand; a country that operates a…

1299

Abstract

Purpose

The purpose of this paper is to use firm-level data to examine whether the political cycle differentially relates to small vs large firms in New Zealand; a country that operates a unicameral political system has a short three-year political term and a right-of-centre stock market premium exists.

Design/methodology/approach

Using firm-level data from 1972 to 2010, the authors examine monthly returns during right-of-centre National governments and left-of-centre Labour governments. The authors apply Santa Clara and Valkanov (2003) regression analysis approach to examine the political cycle impact on firm returns.

Findings

Like in the USA, New Zealand’s political cycle premium is driven by small firms; however, the results are opposite. In New Zealand, periods governed by the right of the political spectrum produce significantly higher stock returns than those from the left and this finding is primarily driven by small firms who perform particularly poorly under left-of-centre governments.

Research limitations/implications

Small firms were relatively heavily affected by the move to an open, deregulated economy; they were also less able to cope with tight monetary conditions, and periods of sharply falling inflation. New Zealand’s three-year political term may encourage newly formed governments to implement relatively fast moving shifts in policy where a more reasoned and steady approach would be warranted.

Originality/value

This is the first paper to use firm-level data outside of the USA to examine the political cycle impact.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2015

Reza Houston and Stephen Ferris

The purpose of this paper is to analyze the value of corporate political connections resulting from the revolving door of employment between political office and the for-profit…

1230

Abstract

Purpose

The purpose of this paper is to analyze the value of corporate political connections resulting from the revolving door of employment between political office and the for-profit corporation. The authors test whether there is value to firms from political connections provided by the appointment of former politicians to corporate boards or management teams. The authors also test to see if passage through the door in the other direction, from the corporate world to public office, generates value for firms. Do firms whose former employees gain public office earn excess returns following their appointment or election to these positions?

Design/methodology/approach

The methodology used in this study focusses on an empirical analysis of the political connections of US firms over the sample period 1996-2011. The analysis emphasizes the wealth effects associated with the announcement of hiring former politicians to corporate boards or the gaining of political office by former corporate employees.

Findings

The authors find that politicians becoming corporate directors is 2.5 times more common than corporate executives gaining public office. The authors determine that industries with extensive government regulation most often hire former politicians. The authors find that the office held by former politicians matters. The authors find that longevity in a cabinet position is important while formal Congressional or Senate leadership positions are not. Surprisingly, the authors determine the longer politicians are out of office, the more value they are able to provide to the firm. Finally, the authors discover that firms which hire former politicians have significantly positive long-term abnormal returns, but firms whose managers enter politics do not.

Originality/value

This study is highly original in its examination of political connections resulting from door swing in both directions. Further, the analysis of longevity, time out of office, and position held adds to the contributions made by this study.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2015

Andreea Stoian and Delia Tatu-Cornea

The purpose of this paper is to examine the influence of the political partisanship of government in charges of returns on the European stock markets. The authors found a large…

646

Abstract

Purpose

The purpose of this paper is to examine the influence of the political partisanship of government in charges of returns on the European stock markets. The authors found a large body of research investigating this issue for the case of US stock market but less evidence for the European stock markets.

Design/methodology/approach

The authors employ a panel data model with fixed-effects and an additional dynamic panel model using the bias-corrected LSDV estimator on a data set consisting of monthly and quarterly data. The data range from 2000 to 2010 and cover 20 European Union (EU) countries. The authors test several hypotheses, and run distinct regressions using political, financial, and economic variables. The authors also divide the data set into two sub-samples in order to reveal the distinctions between advanced and emerging economies in the EU.

Findings

The authors find that stock markets perform better under right-wing administrations. The result is consistent for the advanced EU economies, but the authors found no robust evidence in that sense for emerging countries. Additionally, the authors show that European stock market preferences for right/left-wing administrations is not necessarily related to the beliefs about the size of unemployment, inflation, deficit, and/or debt, which opens the field for further research in this area.

Originality/value

The study contributes to existing knowledge. It examines if Wall Street folklore, asserting for many decades that stock markets perform better under right-wing governments, also holds for European stock markets given the distinctions in the political and financial systems between USA and Europe. Moreover, the authors underline the introduction in the analysis of the Central and Eastern European countries.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 12 October 2015

Ahmed Jeribi, Mohamed Fakhfekh and Anis Jarboui

Previously elaborated research works, dealing with the political uncertainty effect on stock market, have been primarily concerned with such political events as terrorist attacks…

860

Abstract

Purpose

Previously elaborated research works, dealing with the political uncertainty effect on stock market, have been primarily concerned with such political events as terrorist attacks, elections, wars, natural catastrophes and financial crashes. Such little research has been concerned with civil uprisings and revolutionary movements, as crucial sources of political uncertainty. The purpose of this paper is to study the impact of political uncertainty (resulting from the Tunisian Revolution) on the volatility of major sectorial stock indices in the Tunisian Stock Exchange (TSE).

Design/methodology/approach

The authors apply the fractionally integrated exponential generalized autoregressive conditional heteroscedasticity model (FIEGARCH), which helps maintain a direct shock-persistence as well as a shock asymmetric volatility measurement. This model is applied to the daily returns relevant to nine sectorial stock indices and to the Tunisian benchmark index (TUNINDEX) with respect to three sub-periods (before, during and follows the Tunisian Revolution).

Findings

The reached findings suggest that the shock impact throughout the Revolution period on construction, industries, consumer services, financial services, financial companies indices’ sectorial and the TUNINDEX return volatilities have proven to be permanent, while its persistence on the other indices has been discovered to be transitory. In addition, the achieved results appear to reveal a low leverage effect on all indices. This result seems to be very important since the Tunisian Revolution turns out to have a very important effect on the TSE.

Originality/value

The paper’s empirical contribution lies in using the FIEGARCH approach to model the Tunisian sectorial indices’ volatility dynamics, persistence degree and leverage effect. This contribution goes a long way in helping regulators and international investors to further recognize the extent to which political instability does participate in affecting the TSE.

Details

Managerial Finance, vol. 41 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

Available. Open Access. Open Access
Article
Publication date: 29 July 2020

Gerry Larsson and Christina Björklund

The purpose of this study is twofold. First, to compare the self-rated leadership behaviors, leadership-related competencies and results of the leadership of younger, mid-aged and…

12149

Abstract

Purpose

The purpose of this study is twofold. First, to compare the self-rated leadership behaviors, leadership-related competencies and results of the leadership of younger, mid-aged and older leaders; and second to compare these aspects among younger leaders in different kinds of the work environment and between men and women.

Design/methodology/approach

Data was collected using the developmental leadership questionnaire from a sample of Swedish leadership course participants (N = 7,743).

Findings

The results showed that the younger group of leaders (29 years old or younger n = 539), rated themselves more negatively than the mid-aged (30–50 years, n = 5,208) and older (51 years or older, n = 1,996) leaders. Analysis of the group of younger leaders showed that those working in the private sector scored most favorably. The gender comparison revealed that young male leaders scored higher on negative conventional (transactional) and destructive leadership behaviors. A logistic regression analysis of the younger group showed that social competence, developmental leadership and destructive leadership (negative) influenced self-rated results of leadership.

Research limitations/implications

The study is based on leaders’ self-ratings only.

Practical implications

The results can be used in leadership development contexts and in individualized coaching or mentoring programs.

Originality/value

The results have new implications for leadership theory related to self-confidence, stereotypes, selection and organizational culture.

Details

Management Research Review, vol. 44 no. 5
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 11 December 2017

Teresa Martha Söderhjelm, Gerry Larsson, Christer Sandahl, Christina Björklund and Kristina Palm

The purpose of this paper is to understand the influence of leadership programmes on leaders and co-workers, as well as which mechanisms are involved in the process.

6294

Abstract

Purpose

The purpose of this paper is to understand the influence of leadership programmes on leaders and co-workers, as well as which mechanisms are involved in the process.

Design/methodology/approach

An analysis was done into 431 free-text answers to questionnaires given to 120 participants in two different leadership programmes and their co-workers six months after their participation, using a grounded theory inspired approach.

Findings

The result is a model, linking internal psychological and external behavioural aspects, with the central outcome that leaders gained more confidence in their leadership role through theoretical models learned, and reflection.

Research limitations/implications

The course participants as well as the co-workers seemed to experience a positive leadership development indicating a value of participating in the courses.

Practical implications

Confidence in leadership role seems important for having positive outcomes of leadership. Although this needs further research, it is something organisations should consider when working with leadership questions.

Social implications

The co-workers perceived their leaders to be calmer, more open for discussions, and willing both to give and receive feedback post training. There appears to be an increase in trust both in the leader and reciprocally from the leader in the co-workers.

Originality/value

Until now there has not been any systematic research into the effects on participants and co-workers following the programmes, despite the fact that over 100,000 have participated in the courses.

Details

Leadership & Organization Development Journal, vol. 39 no. 1
Type: Research Article
ISSN: 0143-7739

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