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When the Presidential Candidate Comes to Town: The Impact of Donald J. Trump’s Campaign Rallies on Local Firms’ Environmental and Social Performance

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Abstract

This study investigates how the explicitly anti-prosocial and anti-pro-environmental speech by political elites affects firms’ environmental and social (E&S) performance. Using the case of the Donald J. Trump (DJT) campaign for president in the United States when he gave out controversial and inflammatory remarks, including those regarding E&S issues, we find that local firms’ E&S performance decreased significantly in the year following DJT’s presidential campaign rally compared with firms in other geographic areas where there was no DJT’s presidential campaign event. A further test indicates that the change in firms’ E&S performance can be driven by DJT remarks’ influence on local social norms shift. Furthermore, we show that the post-rally decrease of local firms’ E&S performance is more pronounced for local firms that operate primarily locally or local firms that are more sensitive to political uncertainty. Taken together, these findings indicate that political events such as political elites giving remarks can affect firms’ E&S performance.

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Notes

  1. He started by telling the crowd that “our country is in serious trouble. We don’t have victories anymore,” blaming China for “killing us” in trade deals, promising the crowd to build a “great, great wall” along the Mexican border, accusing Mexican immigrants as “criminals, drug dealers, and rapists,” and ultimately introducing his slogan for his presidency, “Make America Great Again.”

  2. For example, in 2015, DJT promised to build a wall along the Mexican border. He also called Mexican immigrants “criminals, drug dealers, and rapists.” DJT called for a complete ban on all Muslims entering the United States. (See https://www.businessinsider.com/trump-mexicans-rapists-remark-reference-2018-4 and https://en.wikipedia.org/wiki/Executive_Order_13769). In a speech at an Arizona rally, in August 2016, DJT said, “It’s our right as a sovereign nation to choose immigrants that we think are the likeliest to thrive and flourish and love us” (https://www.politico.com/story/2016/08/donald-trump-immigration-address-transcript-227614).

  3. For example, he promoted the discredited belief that vaccines can cause autism. He also stated that Obama might have attended a particular funeral "if it were held in a Mosque" and that "some people" think a Muslim already had been elected president (https://www.nytimes.com/2016/03/01/us/politics/donald-trump-conspiracy-theories.html).

  4. Social members are informally bonded to follow social norms to avoid social censure (DeRidder & Tripathi, 1992), or to gain social approval (Mendelberg, 2001). Individuals might avoid publicly expressing some views or opinions if they believe their opinions are inappropriate or unacceptable in their social environment (Bursztyn et al., 2020). Prior literature shows that individuals care about how they are perceived by others and that such social image concerns affect their decisions, such as charitable giving (DellaVigna et al., 2012) or political behavior (DellaVigna et al., 2016; Perez-Truglia & Cruces, 2017).

  5. It is not necessary that DJT’s remarks must shift all local social members’ views to some extent. As long as a certain number of social members’ views on the equilibrium between pursuing short-term economic benefit and maintaining high E&S standards are shifted, the equilibrium of the local social norms is shifted.

  6. For example, in a speech at a Pennsylvania rally, on September 22, 2016, DJT said, “I’m going to lift the restrictions on American energy and allow this wealth to pour into our communities including right here in the state of Pennsylvania” (https://www.post-gazette.com/local/city/2019/10/23/Pittsburgh-Paris-Donald-Trump-reiterates-commitment-withdraw-Paris-climate-accord/stories/201910230158.). In a speech in North Dakota on May 26, 2016, DJT claimed he will “rescind all the job-destroying Obama executive actions, including the Climate Action Plan and the waters of the United States rule,” “ask Trans Canada to renew its permit application for the Keystone pipeline,” and “cancel the Paris climate agreement” (https://factba.se/transcript/donald-trump-speech-williston-nd-may-26-2016.). In his 2016 West Virginia rally, DJT claimed, “If I win, we’re going to bring those miners back. … These ridiculous rules and regulations that make it impossible for you to compete, so we’re going to take that all off the table” (http://blogs.wvgazettemail.com/coaltattoo/2016/05/06/what-trump-didnt-tell-the-coal-miners/). At a 2018 Houston, Texas, midterm rally, he promised to approve the Keystone and the Dakota Access pipeline (https://www.presidency.ucsb.edu/documents/remarks-make-america-great-again-rally-houston-texas).

  7. See https://www.epa.gov/air-trends/air-quality-national-summary.

  8. The stakeholder theory indicates that stakeholders can withhold the flow of resources or limit the way a firm uses resources to saliently affect a firm’s E&S decision and behavior (Frooman, 1999; Yang & Rivers, 2009).

  9. Stakeholders, which have been well identified in prior literature, consist of multilevel groups, such as (1) social context–level groups, for example, governments, local communities, trade associations, and some non-governmental organizations, and (2) organizational-level groups, for example, investors, customers, employees, and suppliers (Aguilera et al., 2007; Boehm, 2002; Donaldson & Preston, 1995; Prebble, 2005; Yang & Rivers, 2009).

  10. For example, though it is not conclusive whether corporate E&S engagement is financially beneficial to the firm, previous literature has shown that firms engage in E&S activities because, as a form of delegated prosocial behavior, such actions can provide direct value to firm stakeholders (investors, customers, employees, managers) even if it is financially costly (Bénabou & Tirole, 2010; Di Giuli & Kostovetsky, 2014).

  11. Both social preference and social norms are concepts widely studied in behavioral and experimental economics and social psychology. Social preferences refer to the phenomena that people seem to care about certain social goals. A person exhibits social preferences if he or she cares not only about his or her own material payoff but also about the reference group's payoff and/or the intention that leads to the payoff (Camerer, 2003; Sobel, 2005; Tversky & Kahneman, 2000). Social norms are defined as “an informal standard of social behavior accepted by most members of the culture and that guides and constrains behavior” (Mendelberg, 2001; Bursztyn et al., 2020). Both concepts are referred similarly to a code of behaviors or opinions: some behaviors and opinions are socially desirable, while others are stigmatized, and in this study, we use these two concepts interchangeably and do not strictly differentiate these two terminologies or how they affect firm choice differently.

  12. Anecdotal evidence shows that DJT will revise his speech to cater to the local audience. For example, he targets U.S. Rep. Ilhan Omar and Somali refugees during a Minnesota rally (https://www.cnn.com/2019/10/10/politics/donald-trump-campaign-rally-minnesota/index.html) and targets Michigan governor Gretchen Whitmer during a Michigan rally (https://www.usatoday.com/story/news/politics/elections/2020/10/17/trump-slams-michigan-gov-gretchen-whitmer-amid-lock-her-up-chants/3697599001/).

  13. In our main tests, we use the weighted average E&S scores, but our results do not alter when we replicate the tests using raw E&S scores.

  14. See https://en.wikipedia.org/wiki/List_of_rallies_for_the_2016_Donald_Trump_presidential_campaign and https://en.wikipedia.org/wiki/List_of_post-election_Donald_Trump_rallies.

  15. We use the 100 miles as a cutoff because the threshold of 100 miles is well established in the literature to capture the 1-day trip distance for normal Americans (Dai et al., 2020; Kubick & Lockhart, 2016; Tian, 2011).

  16. It is difficult to measure social norm change empirically because social norms are multidimensional. The theoretical literature on social norms is multifaceted, as many begin with a caveat similar to the one from Young (2015, p. 360): “Given space limitations, it is impossible to provide a comprehensive account of the social norm literature.” So we have to admit that hate crime can only capture certain aspects of social norms.

  17. See https://ucr.fbi.gov/hate-crime/2019/topic-pages/jurisdiction.

  18. If there was a DJT rally within 100 miles of the firm headquarters but the city is only within 100 miles of the firm headquarters, not within 100 miles of the rally venue, we exclude this city in calculating the average hate crime rate. But our results do not alter even we keep these observations to calculate the average hate crime rate.

  19. The number of subsidiaries in Table 7 is the raw number of subsidiaries deflated by 100 to adjust for an appropriate scale for presentation purposes.

  20. We also provide the summary statistics for the raw quarterly GDP for each state in millions (i.e., State_GDP_Raw) before the log transformation of the state quarterly GDP in Table 2, Panel A.

  21. The sample in Table 6, column (1) is only at city-quarter level with DJT’s rally-related variable added, and it is not merged with our baseline sample (which is the firm E&S sample at firm-month level) yet, so the observation is smaller than our main sample. In columns (2–4) of Table 6, we merge the city-quarter hate crime rate sample with firm-month-level E&S sample and get a consistent number of observations with main tests depending on the availability of control variables.

  22. To make the scale of the regression coefficients more readable, we divide the total population by one million in column (1) and multiply the hate crime rate by one million in columns (2–4) of Table 6. The adjustment only change the scale of regression coefficients, but do not alter the sign, significance level, or our conclusion.

  23. In columns (3) and (4), if within the previous year the state governor changed but the new inaugural governor is in the same party with the previous governor, we still keep these observations.

  24. We cut the sample to 2017 because a considerable amount of firms’ E&S scores observations are affected by a rally in 2016, and most rallies in 2016 are pre-election rallies, such as primary or general election rallies.

  25. These city-level ethnicity data for cities or areas holding DJT’s rallies and national average are all hand collected from the U.S. Census Bureau website: https://www.census.gov/acs/www/data/data-tables-and-tools/data-profiles/

  26. Hate crimes include the crimes against a certain race, religion, disability, sexual orientation, or gender identity.

  27. This finding is consistent with the evidence documented in political and sociological studies (e.g., Edwards & Rushin, 2018; Giani & Méon, 2021; Muller & Schwarz, 2020; Newman et al., 2021).

  28. We also conducted robustness, cross-sectional, placebo, and additional analyses to ensure that our findings are robust to alternative specifications and to lend additional credence. These tests are discussed in “Descriptive Statistics”, “Social Norms Change as a Potential Channel (H2)”, and “Discussion” sections.

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Acknowledgements

We would like to thank Tailan Chi, Yan Huang, Chris Pantzalis, Wei Yang, and Lei Xu for many helpful comments and suggestions. All errors and omissions are the responsibility of our own.

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Authors and Affiliations

  1. Iowa State University, Ames, USA

    Feng Guo

  2. University of North Carolina at Greensboro, Greensboro, USA

    Yonghong Liu & Mengmeng Wang

  3. Youngstown State University, Youngstown, USA

    Yiyang Zhang

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Appendix A: Definitions of variables

Appendix A: Definitions of variables

Variable

Definition

Social_Score

The natural logarithm of one plus the firm’s monthly social score from the Sustainalytics ESG Research and Ratings dataset

Environment_Score

The natural logarithm of one plus the firm’s monthly environmental score from the Sustainalytics ESG Research and Ratings dataset

DS100_1YR

An indicator variable equal to one if the social or environmental score is disclosed within 1 year after a DJT rally by a firm whose headquarters is within 100 miles’ distance from the rally venue, and zero otherwise

DS100_6Mon

An indicator variable equal to one if the social or environmental score is disclosed within 6 months after a DJT rally by a firm whose headquarters is within 100 miles’ distance from the rally venue, and zero otherwise

DS100_2YR

An indicator variable equal to one if the social or environmental score is disclosed within 2 yearss after a DJT rally by a firm whose headquarters is within 100 miles’ distance from the rally venue, and zero otherwise

DS150_1YR

An indicator variable equal to one if the social or environmental score is disclosed within 1 year after a DJT rally by a firm whose headquarters is within 150 miles’ distance from the rally venue, and zero otherwise

DS100_P3YR

An indicator variable equal to one if the social or environmental score is disclosed within 1 year after the pseudo date of DJT’s rally (i.e., 3 years before the actual DJT’s rally date) by a firm whose headquarters is within 100 miles’ distance from the rally venue, and zero otherwise

Size

Firm size. Measured as the natural logarithm of the firm’s market value of equity (in millions) at the most recent fiscal quarter-end before the monthly social or environmental score

MTB

Market-to-book ratio. Measured as the ratio of the firm’s market value of equity to the book value of equity at the fiscal quarter-end before the monthly social or environmental score

LEV

Leverage. Measured as the sum of long-term debt and short-term debt deflated by the total assets at the fiscal quarter-end before the monthly social or environmental score

LIQ

Liquidity ratio. Measured as the sum of liquid assets deflated by the total assets at the fiscal quarter-end before the monthly social or environmental score

TANG

Tangible assets ratio. Measured as the tangible assets deflated by the total assets at the fiscal quarter-end before the monthly social or environmental score

ForeignSale

The percentage of foreign sales during the year before the monthly social or environmental score

CashETR

The effective tax rate of the firm during the year before the monthly social or environmental score

State_GDP

The logarithm of the gross domestic product (in dollars) of firm headquarters’ state in the most recent quarter before the environmental and social scores

State_Unemploy

The unemployment rate of firm headquarters’ state in the most recent month before the environmental and social scores

ST_IO

Percentage of shares held by short-term institutional investors (following Bushee, 2001)

LT_IO

Percentage of shares held by long-term institutional investors (following Bushee, 2001)

HCrimeRate

The city’s total number of hate crimes scaled by the city’s total population in a quarter

City_Rally_DS100_1YR

An indicator variable that equals one if the hate crime rate is regarding the quarter within 1 year after DJT’s rally and regarding the city which is located within 100 miles’ distance from the rally venue, and zero otherwise

AvgHCrimeRate

The aggregated average hate crime rate of all cities which are within 100 miles of the firms in our baseline sample in the same quarter as the firm’s E&S score month

NSubsidiary

The number of a firm’s subsidiaries disclosed in the annual financial statement (divided by 100) at the fiscal year-end before the environmental and social scores. It equals 0 if the number is missing

PS_H

An indicator variable equal to one if the firm-month’s political sensitivity captured by βps from the regression of Eq. (6) is distributed within the top quintile in our sample, and zero otherwise

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Guo, F., Liu, Y., Wang, M. et al. When the Presidential Candidate Comes to Town: The Impact of Donald J. Trump’s Campaign Rallies on Local Firms’ Environmental and Social Performance. J Bus Ethics 186, 531–552 (2023). https://doi.org/10.1007/s10551-022-05212-z

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  • DOI: https://doi.org/10.1007/s10551-022-05212-z

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