Conservative versus Liberal CEOs: Shareholder Reactions to New CEOs’ Political Ideologies

CEO political ideology is more visible now than ever. We ask whether shareholders react differently depending on the conservatism or liberalism of a new CEO. We suggest that more conservative CEOs will be positively received by shareholders and more liberal CEOs negatively. In addition, we theorize that the negative market reaction to a new CEO’s liberalism is stronger when 1) more security analysts cover the firm, 2) pre-succession financial performance is worse, and 3) pre-succession social performance is better. Using a large sample of S&P 1500 firms between 2001 and 2019, we find support for our theoretical expectations. This study highlights the importance of individual political ideologies of new CEOs to the market. It also advances strategic leadership research by showing the effect of CEO political ideology on market valuation, beyond its effect on strategic decisions of CEOs.