By Ilona Babenko, Viktar Fedaseyeu, and Song Zhang

“Business and politics don’t mix." It’s an oft used but perhaps inaccurate statement, since modern corporations in every sector routinely choose to take a political stance. Whether it’s through their partnerships, their social media interactions, or even direct monetary contributions, firms regularly tie their colours (subtly or overtly) to the mast of a political movement or specific party.

But in times of national and even global emergency, it appears that setting partisan politics aside is not only the noble choice, it’s also good for business. In our analysis of nearly 5,000 Covid-19 response actions made by over 1,600 large US firms during Feb-June 2020, responses from non-partisan CEOs generated greater shareholder value on average than those of CEOs with exclusively Democrat or Republican affiliations.

Our data covered 20 different types of pandemic response actions, including layoffs, hiring freezes, executive and employee pay cuts, enhanced sanitation practices, remote work setups, monetary and in-kind donations to frontline workers, and many others. We found that the political beliefs of a given firm’s CEO played an important role in how and when they responded to the evolving pandemic. Democrat-leaning CEOs responded more proactively, while Republican CEOs routinely viewed COVID-19 as less of a threat, leading them to adopt more expansionist policies such as new hirings and even dividend increases.

So, who was right? Were the Democrats overreacting? Did the Republicans underestimate the threat? Or were nonpartisan CEOs getting it right?

These simple questions are hard to answer due to the sheer complexity of the pandemic itself in terms of its effects on global business and society at large. However, if we focus purely on firm performance in the stock market, non-partisan responses generated more enthusiasm from investors than partisan responses:

• Across the whole dataset, adopting COVID-response policies led to positive excess equity returns of about 1% on average, each generating approximately $213 million in shareholder value.
• Stock returns around announcements by partisan CEOs, while still positive on average, were smaller: +0.39% for Democrats and +0.51% for Republicans.
• Firms run by nonpartisan CEOs experienced the largest stock returns: +1.13%, or $215 million of extra shareholder value on average.

These results suggest that when firms responded to the crisis proactively, they were rewarded by investors through higher equity prices. At the same time, those CEOs who not only responded proactively but also incorporated diverse views into their decision-making process performed best during the Covid-19 crisis.

While COVID-19 seems to have done little to bridge the bitter political divide in the US and many other countries, investors apparently chose to punish partisanship in a time of crisis, preferring to put their faith (and money) in firms with leaders who could work with both sides of the political aisle.

That CEOs’ political beliefs may affect their decisions is perhaps understandable. They are human, after all, and studies of the general public’s response to the pandemic have shown that people living in Republican-dominated areas were less likely to follow stay-at-home orders or mask mandates. CEOs, however, carry a heavier burden of responsibility than members of the general public. Arguably, this burden of additional responsibility demands greater care in making decisions, especially during extraordinary crises that affect the jobs and livelihoods of tens of millions of people.

Our evidence suggests that partisanship did play a role in CEOs’ response to the Covid-19 pandemic and that diverging views between Republicans and Democrats may have led to suboptimal crisis response policies. While the partisan gap in the public’s attitude toward the pandemic remains wide, CEOs can start bridging this gap by considering a variety of diverse opinions when making their own decisions. Their firms and stakeholders will likely be grateful for that.

This article refers to a study entitled, “Can Setting Partisanship Aside Improve Crisis Response During the Pandemic?” by Ilona Babenko, Viktar Fedaseyeu, and Song Zhang.

Ilona Babenko is an Associate Professor of Finance at the W. P. Carey School of Business, Arizona State University. Viktar Fedaseyeu is an Associate Professor of Finance at CEIBS. Song Zhang is an Assistant Professor of Finance at the University of Delaware.