Full disclosure? Companies adjust reporting strategies in the face of political uncertainty

Many people associate changes in stock market activity with presidential and other national elections — but state elections can also have an impact by influencing the type and frequency of financial disclosures investors use to make investment decisions, according to a new working paper by Assistant Professor of Finance Joshua T. White.

Josh White

“A lot of attention is given to how presidential elections affect the stock market, but governor elections significantly impact companies in those states…Governors influence policies on state-level corporate tax rates and local labor laws, and have sway on spending and incentives for new business and investment,” White explained.

White’s paper, titled “Political Uncertainty and Firm Disclosure,” co-authored by Audra L. Boone of Texas Christian University, and Abby Kim of the U.S. Securities and Exchange Commission, finds that corporate managers dynamically adjust their financial disclosure strategies in the months leading up to governor elections because of the potential impact of impending policy changes on company cash flows.