A source of new information? the market effects of corporate testimony in congressional hearings (2000-2005)

Given that Congressional hearings are established legislative and political information generating tools for committee members engaging in oversight, fact finding, and agenda setting, I examine whether or not hearings provide information to actors outside of government. More specifically, does testimony by corporate representatives provide new information to the stock market about the future profitability of certain firms? In this paper, I utilize a new dataset collected by Workman and Shafran (2009) that includes 3,300 witnesses (and their affiliations) who testified in business regulation hearings between 2000 and 2005. I identify 99 publicly traded firms with representatives testifying in 117 hearings, and utilize event study methodology to estimate the effects of testimony events on the daily stock returns of corresponding firms. I find that, even with the ‘expectedness’ of Congressional hearings, such events negatively impact stock returns both generally as well as with greater magnitude under certain conditions. This event effect is largest for politically sensitive firms and for hearings held in the Senate. When selecting a portfolio of firms that combines all significant conditions, I determine that the ‘upper bound’ of the effect is one-half a standard deviation in daily returns (or a change of -1.6% in prices). Congressional hearings with corporate testimony do, in fact, generate information for external actors.