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Divided we fall: Congressional cycles, the stock market and firm performance

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  • Livnat, Joshua
  • Rubin, Amir
  • Segal, Dan

Abstract

This study examines the impact of partisan control of the United States Congress on corporations and the economy. The findings indicate that economic performance is weaker when neither party holds a majority in both chambers of Congress, resulting in a divided Congress. We propose that this outcome may be attributed to a decrease in the level and quality of regulation during divided Congress terms. To analyze the immediate effects of regulation on the economy, we leverage congressional recess periods as a source of exogenous variation. Consistent with the conjecture that the composition of Congress affects the economy through its regulatory activity, we demonstrate that a divided Congress negatively impacts economic performance when Congress is in session but has no significant effect during recesses (when regulation does not occur). In conclusion, congressional cycles and the presence of effective regulation are shown to be crucial factors influencing economic activity.

Suggested Citation

  • Livnat, Joshua & Rubin, Amir & Segal, Dan, 2025. "Divided we fall: Congressional cycles, the stock market and firm performance," Journal of Corporate Finance, Elsevier, vol. 92(C).
  • Handle: RePEc:eee:corfin:v:92:y:2025:i:c:s0929119925000446
    DOI: 10.1016/j.jcorpfin.2025.102776
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    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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