PUMPING THE BRAKES: EXAMINING THE IMPACT OF CEO POLITICAL IDEOLOGY DIVERGENCE ON FIRM RESPONSES

Research on CEO political ideology has demonstrated the construct’s impact on many firm outcomes. Yet, political ideology does not exist in a vacuum; beyond representing a CEO’s values, political ideology also affects the CEO’s perception of the political environment. It remains unclear how a difference between the national political climate and the CEO’s own political ideology might affect strategic decision-making. Applying upper echelons and threat response perspectives, we propose that divergence between the national political climate and the CEO’s own ideology provokes a threat response, leading CEOs to cut research and development spending and increase retained earnings. We then examine two boundary conditions for this relationship. First, we propose that CEO wealth tied to the firm in the form of vested stock options will increase the perceived threat of ideology divergence, strengthening the threat response. Second, we propose that industry regulation will dampen the threat perceived from divergence, as well as hindering the CEO’s ability to respond to the threat at all, because of greater stability and lower discretion, respectively. We test these predictions on a sample of Standard & Poor’s 500 CEOs from 2004 to 2017 and find support for our hypothesized relationships.