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Past Issue • Oct-Dec 2013

Political Speech and Economic Outcomes: Running the Numbers

Professors Art Durnev, Larry Fauver and Nandini Gupta present a summary of the findings of their textual analysis of gubernatorial speeches in the United States and find a positive association between the level of optimism expressed in the speech and abnormal returns of fi rms headquartered in that state. They also find that a more optimistic gubernatorial speech is associated with an increase in investment and employment of firms located in that state, whereas a more pessimistic speech is associated with a decline in investment and employment. Moreover, political rhetoric was more informative during the recent economic crisis, when government policy had a greater impact.

“Gerald Ford wasn’t known as a particularly great communicator. But whatever his reputation for awkwardness, each of Ford’s three State of the Union addresses to the nation was rewarded by the stock market the following day...”– “History of Market Responses to the State of the Union,” Wall Street Journal, January 24, 2011. Do politicians’ speeches contain new information that may be useful to investors and firms? Or are speeches simply uninformative cheap talk ignored by market participants? Describing Governor Eliot Spitzer of New York’s first State of the State address, the New York Times noted, “While some of the proposals were outlined during his campaign, in his speech to lawmakers he offered several new initiatives and promised to accomplish others during his first year in office” (“Spitzer Requests Sweeping Array of New Measures,” The New York Times, January 4, 2007). Using data on gubernatorial political speeches in the United States, we investigate whether political speech is informative for firms and investors.


  • Durnev

    Art Durnev

    Associate Professor of Finance at the Henry B. Tippie College of Business, University of Iowa.
  • Larry-Fauver-feb7

    Larry Fauver

    Associate Professor of Finance and the James F. Smith, Jr. Professor of Financial Institutions at University of Tennessee.
  • Nandini-Gupta

    Nandini Gupta

    Associate Professor of Finance and Koenig Faculty Fellow at Indiana University’s Kelley School of Business.
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