| Abstract |
This study documents that CEOs' expectations about firm performance are more negatively biased in periods when the White House is governed by the political party that the CEOs did not contribute to, relative to periods when the White House is occupied by the CEOs' party. This negative bias holds as strongly toward the end of the year, suggesting that CEOs do not revise their priors in response to new information. The results are stronger for firms whose performance is more correlated with the general economic conditions, consistent with managers' biased beliefs about the economy driving the results. Upon facing an opposing presidency, the sensitivity of CEOs' capital investments to cash flow decreases, relative to their politically aligned years. By contrast, actual firm performance is largely unaffected. Overall, our results highlight the importance of political partisan bias in shaping |