The Impact of CEO Political Ideology on Labor Cost Reductions and Payout Decisions During the COVID-19 Pandemic

Using a hand-collected dataset, we study whether CEO political ideology affected S&P 500 firms’ reactions to the COVID-19 pandemic in 2020. In such a situation, CEOs can make shareholders bear the pain that rises by paying lower dividends, make the workforce bear the pain by reducing labor costs, or share the pain. We hypothesize that conservative CEOs would have been more likely to aggressively reduce labor costs while still meeting dividend expectations. Conversely, other CEOs would have been less likely to meet dividend expectations and less likely to reduce labor costs. The evidence supports this hypothesis. We also find that, during the pandemic, conservative CEOs used temporary downsizing to avoid earnings losses, enabling them to meet dividend expectations.