It pays to walk through the revolving door.
When someone associated with a company gets appointed to a government post, that company sees a boost in its stock price, according to an analysis of defense contractors by two Swiss economists. And the bump isn’t minor. On average, the companies’ stock prices increase by 0.82 percent on the first day after the announcement and 0.84 percent on the second day.
Companies also get a boost when the door swings the other way. After a prominent person working in government is appointed to a firm, the company’s stock price sees a 0.79 percent boost immediately and a 1.05 percent boost two days following the announcement, the study found.
The report isn’t the first to call attention to the cozy relationship between business and Washington. Neil Barofsky, the former watchdog of the financial crisis bailouts, derided the Obama and Bush administrations for allowing close relationships with Wall Street that he says influenced the terms of the bailout.
That revolving door has raised questions about whether Washington is more responsive to the needs of big business than ordinary Americans. Gary Gensler, the head of the Commodity Futures Trading Commission, worked at Goldman Sachs for 18 years before starting his career as a public servant. Jacob Lew, President Obama’s chief of staff, had a stint at Citigroup in between various government appointments. His predecessor Bill Daley worked at JPMorgan Chase before becoming chief of staff.
Even beneficiaries of the close relationship between Washington and business have criticized that relationship. Charles Koch, the CEO of Koch Industries, has derided what he describes as crony capitalism -- or the way the government subsidizes various businesses -- as a “destructive force.”
But as the recent study notes, it’s not only subsides and tax breaks that can come from the revolving door. A company’s stock price is often boosted as well. That increase is usually bigger when the announcement is connected to the Democratic Party, the study found.
(Hat tip: The Washington Post)
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