Executive Political Leanings and COVID-19 Disclosures

We examine whether the U.S. partisan gap over the COVID-19 pandemic finds its way into corporate decisions in terms of how firms communicate the impact of the pandemic to investors. Specifically, we examine whether executives’ political leanings affect their firms’ qualitative disclosures regarding the pandemic. We find that firms led by Republican-leaning executives not only provide a smaller amount of COVID disclosure in quarterly financial reports but also use language of a more positive tone, compared to firms led by Democratic-leaning executives. This finding is consistent with data from multiple surveys suggesting that Republican-leaning executives are more optimistic about the pandemic than their Democratic-leaning counterparts, yet in contrast to prior studies showing that Republican-leaning executives are generally more conservative and take greater caution in quantitative disclosures. We also find that the negative association between Republican leaning and the amount of COVID disclosure was more pronounced when the Republican party held the U.S. presidency, consistent with the prediction of partisanship alignment theory. In addition, we find that the market reacts more strongly to the tone of COVID disclosures from Republican-leaning executives.