Political polarisation is all too evident in today’s America. Is it affecting people’s financial decisions?
Yes, according to Political Polarisation and Finance, a new Harvard review that notes people are usually more optimistic about the economy when their preferred party is in power. Joe Soap isn’t the only one making politically biased financial decisions.
Credit analysts issue lower ratings and harsher downgrades when the president belongs to the opposing party, resulting in increased borrowing costs and a lower market capitalisation for affected companies.
Bank loan officers make different decisions depending on whether their preferred party is in power. Republicans are more likely to start new businesses when a republican president is in office.
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Judicial and regulatory decisions against companies are also influenced by political leanings. Looking at managed funds, the researchers say politically homogeneous leadership teams do worse than diverse firms with a mix of political viewpoints. In short, there is a “large and often growing partisan gap” in the financial decisions of US households, executives and financial professionals.
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