Finance Research Seminar - Todd Gormley

Todd Gormley - Washington University, St Louis

When do Judges Throw the Book at Companies? The Influence of Partisanship in Corporate Prosecutions

Todd A. Gormley

Washington University in St. Louis; European Corporate Governance Institute (ECGI)

Mahsa Kaviani

University of Delaware

Hosein Maleki

Florida State University - College of Business

We document that partisan views are strongly associated with the level of judicial penalties levied against companies. For example, Republican-appointed judges impose 1,050 percent larger fines for hiring illegal immigrants, while Democrat-appointed judges impose 136 percent larger fines for pollution-related violations. Time-series variation suggests that political partisanship drives these findings, not fixed ideological differences. The differences become amplified before national elections, during periods of greater political polarization, and when higher-court judicial vacancies exist. Evidence also suggests firms are aware of this judicial partisanship and adjust operations accordingly. Our findings illustrate the importance of partisanship and political polarization for US companies.

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