Trump, Regulation and Stock Returns

This paper provides causal evidence for the impact of changes in regulation on shareholder value. Using the 2016 US Presidential election as a shock to expectations about future regulatory policy, I find that stocks in the most regulated industries earned approximately 3.4% higher cumulative abnormal returns than other stocks during 10 trading days post the election results were declared. The results are robust to a battery of robustness tests and alternate explanations. Exploring economic mechanisms through which investors expected firms to benefit from de-regulation, I find that the positive effect on shareholders' wealth is primarily driven by ex-ante high growth firms. Furthermore, in line with the public choice theory of regulations, I find that abnormal stock returns are lower for firms having higher product market concentration and for firms located in states with more Republican Members of Congress \emph{in} more regulated industries