Political Polarization and Finance

Paper

Elisabeth Kempf
Author: Elisabeth Kempf

Nbr. Publication(s): 4
Position: Associate professor
Affiliation: Harvard Business School
Member of PolEconFin since: 21 Jun 2021

We review an empirical literature that studies how political polarization affects financial decisions. We first discuss the degree of partisan segregation in finance and corporate America, the mechanisms through which partisanship may influence financial decisions, and available data sources to infer individuals’ partisan leanings. We then describe and discuss the empirical evidence. Our review suggests an economically large and often growing partisan gap in the financial decisions of households, corporate executives, and financial intermediaries. Partisan alignment between individuals explains team and financial relationship formation, with initial evidence suggesting that high levels of partisan homogeneity may be associated with economic costs. We conclude by proposing several promising directions for future research.

Co-Author(s): Margarita Tsoutsoura

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