The Impact of CEO Political Ideology on Labor Cost Reductions and Payout Decisions During the COVID-19 Pandemic

Ali Bayat; Marc Goergen; Panagiotis Koutroumpis; Xingjie Wei

doi:10.2139/ssrn.3977042

The Impact of CEO Political Ideology on Labor Cost Reductions and Payout Decisions During the COVID-19 Pandemic

Ali Bayat, Marc Goergen^* (Corresponding Author), Panagiotis Koutroumpis, Xingjie Wei

^*Corresponding author for this work

Business Management

Research output: Working paper › Discussion paper

Abstract

Using a hand-collected dataset, we study whether CEO political ideology affected S&P 500 firms' reactions to the COVID-19 pandemic in 2020. In such a situation, CEOs can make shareholders bear the pain that rises by paying lower dividends, make the workforce bear the pain by reducing labor costs, or share the pain. We hypothesize that conservative CEOs would have been more likely to aggressively reduce labor costs while still meeting dividend expectations. Conversely, other CEOs would have been less likely to meet dividend expectations and less likely to reduce labor costs. The evidence supports this hypothesis. We also find that, during the pandemic, conservative CEOs used temporary downsizing to avoid earnings losses, enabling them to meet dividend expectations.

Original language	English
Publisher	European Corporate Governance Institute
Number of pages	72
Volume	No. 802/2021
DOIs	https://doi.org/10.2139/ssrn.3977042
Publication status	Published - 22 Apr 2024

Publication series

Name	European Corporate Governance Institute – Finance Working Paper
No.	802/2021

Bibliographical note

Last revised: 22 Apr 2024

We are grateful to participants at the 7th annual conference of the International Corporate Governance Society at the University of Groningen, the 12th Financial Markets and Corporate Governance Conference at Monash University, the 2022 Finance Forum, the 2022 British Academy of Management Conference, the 22nd Hellenic Finance and Accounting Association conference, and the 2023 World-Class Workshop in Finance at Edinburgh University Business School for helpful comments and suggestions. We would also like to thank seminar participants at the universities of Aberdeen, Leeds, Sabanci, and Sussex, as well as participants at the 2022 Workshop on Corporate Governance and Investment at Copenhagen Business School, for their comments on earlier versions of this paper. Special thanks are due to Miguel Garc a-Cestona, Ricard Gil, Jordan Neyland, and Hanwen Sun.

Keywords

CEO Political Ideology
Dividend Policy
Downsizing
Stakeholder Management
Covid-19 Pandemic

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Cite this

The Impact of CEO Political Ideology on Labor Cost Reductions and Payout Decisions During the COVID-19 Pandemic. / Bayat, Ali; Goergen, Marc (Corresponding Author); Koutroumpis, Panagiotis et al.
European Corporate Governance Institute, 2024. (European Corporate Governance Institute – Finance Working Paper; No. 802/2021).

Research output: Working paper › Discussion paper

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abstract = "Using a hand-collected dataset, we study whether CEO political ideology affected S&P 500 firms' reactions to the COVID-19 pandemic in 2020. In such a situation, CEOs can make shareholders bear the pain that rises by paying lower dividends, make the workforce bear the pain by reducing labor costs, or share the pain. We hypothesize that conservative CEOs would have been more likely to aggressively reduce labor costs while still meeting dividend expectations. Conversely, other CEOs would have been less likely to meet dividend expectations and less likely to reduce labor costs. The evidence supports this hypothesis. We also find that, during the pandemic, conservative CEOs used temporary downsizing to avoid earnings losses, enabling them to meet dividend expectations. ",

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The Impact of CEO Political Ideology on Labor Cost Reductions and Payout Decisions During the COVID-19 Pandemic

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Keywords

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