Take Action

Home | Faculty & Research Overview | Research

Research Details

Profiting from Connections: Do Politicians Receive Stock Tips from Brokerage Houses?, Journal of Accounting and Economics

Abstract

This study investigates whether brokerage houses appear to provide stock tips to politicians. Our results indicate that trades by politicians who are politically connected to the brokerage house where the trade is executed are more profitable in a short window. Our estimates suggest that these connected trades earn an incremental 0.3% over a five-day window relative to the politician’s average trade profitability, translating into an incremental $3,411 in annual trading profits. We provide additional support for our inferences by investigating the frequency and differential profitability of politicians’ trades immediately before the brokerage house issues a revised recommendation, as well as during a period when Goldman, Sachs & Co. was sanctioned for providing stock tips to high priority clients. Additional tests suggest that brokerages may provide stock tips to politicians in exchange for favorable legislative outcomes or value-relevant political information.

Type

Article

Author(s)

Andrew Stephan, Beverly Walther, Laura Wellman

Date Published

2021

Citations

Stephan, Andrew, Beverly Walther, and Laura Wellman. 2021. Profiting from Connections: Do Politicians Receive Stock Tips from Brokerage Houses?. Journal of Accounting and Economics.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action