The Political Economy of Firm Networks: CEO Ideology and Global Trade

Abstract

We examine how the political ideology of corporate leaders shapes cross-border firm networks. Exploiting changes in ideological alignment between U.S. firm CEOs and foreign governments around close foreign elections, we show that U.S. firms are more likely to terminate trade relationships with countries led by governments whose ideology becomes more distant from that of their CEOs. The impact is concentrated in shorter trade relationships, suggesting that ideological alignment is more relevant in more flexible and substitutable connections. We also find that ideological misalignment leads to economic costs for firms with high foreign trade exposure. Our findings highlight the role of ideology in shaping the formation and persistence of international firm networks.