Any executive pondering how close they should get to the Trump administration take heed: CEOs’ visits to the White House likely boost shareholder value, a new study focused on the Obama years has found—and potentially to the tune of hundreds of millions of dollars for each encounter.
Donald Trump has entertained dozens of CEOs since coming to power in January, including tech titans, manufacturing czars and Wall Street chieftains. Sometimes they’ve come to quell concerns about their activities expressed by Trump on his Twitter feed. On other occasions, they’ve participated in advisory panel discussions, or perhaps they’ve just found some time to chew the fat together.
Whatever their reason for meeting, two finance professors at the University of Illinois found that the share-price consequences can be profound.
To test their hypothesis, Jeffrey Brown and Jiekun Huang analysed 2,286 visits by senior company executives to the White House between January 2009 and December 2015. They sourced the data from the Obama administration’s White House visitors log.
“PRESIDENTIAL encounters were associated with an abnormal average positive stock-price return of around 0.9% in the two months that followed.”
They discovered the encounters were associated with an abnormal average positive stock-price return of around 0.9% in the two months that followed.
“We also find evidence suggesting that following meetings with federal government officials, firms receive more government contracts and are more likely to receive regulatory relief,” the authors concluded in the paper.
Of course, not every CEO who visits the White House is trying to influence government policy. And, even if they were, the authors note, it’s not necessarily a bad thing to do.
Intentions aside, the lowdown is that rubbing shoulders with policymakers can provide CEOs with multiple benefits, and not just on government contracts and regulations. They also may gain insight into government plans, potentially giving them a competitive advantage.
Shareholders are wise to the potential benefits and can send a company’s share price up within minutes of getting wind of upcoming meetings.
Indeed, a separate analysis conducted in January by CNBC found that of 11 corporate luminaries who had recently visited president Trump, eight saw their share prices beat the market on that same day. The median level of outperformance was 0.94%.
Brown and Huang drew on the results of their latest study to criticize Trump’s move to stop making White House visitor logs publicly available. While there’s nothing wrong with CEOs visiting the president, they argued, the public—including leaders of rival companies—shouldn’t be kept in the dark about who’s potentially currying his favor.