The value of the revolving door: Political appointees and the stock market

• Positive abnormal stock market returns for political appointments.
• Large sample of political appointees in the United States
• Both sides of revolving door seem valuable to firms.
• Complementary evidence based on procurement data
• Conflicts of interest matter also in a country with allegedly strong institutions.

We analyze stock market reactions to announcements of political appointments from the private sector and corporate appointments of former government officials. Using unique data on corporate affiliations and announcements of all Senate-confirmed U.S. Defense Department appointees of six administrations, we find positive abnormal returns for political appointments. These estimates are not driven by important observations, volatile stocks, industry-wide developments or the omission of further commonly used return predictors. Placebo events for close competitors and alternative dates yield no effects. Effects are larger for top government positions and less anticipated announcements. We also find positive abnormal returns for corporate appointments and positive effects of political connections on procurement volume. Our results suggest that concerns over conflicts of interest created by the revolving door seem justified, even in a country with strong institutions.