A conservative contradiction? The effect of CEO political ideology on strategic risk-taking during national partisan conflict

Increasing polarization in U.S. politics has led the economics and finance literatures to examine its macroeconomic implications, revealing a counterintuitive effect: national partisan conflict reduces macroeconomic volatility, creating legislative gridlock that lowers investors' perceptions of risk. However, implications for management remain unclear, as no research has sought to explain heterogeneity in firms' responses to this phenomenon. We theorize that this occurs because partisan conflict induces shifts in strategic risk-taking, contingent upon differences in CEOs' risk aversion and cognitive disposition. Drawing on upper echelons theory, we hypothesize that conservative CEOs, who are typically risk averse, will be more willing to take strategic risks under the macroeconomic conditions associated with partisan conflict. A study of 375 firms from 2000 to 2022 supports this, showing a shift towards higher-risk strategies among conservative CEOs when partisan conflict is high. This effect is robust to industry effects and independent from other political and economic uncertainties. Additional analyses indicate that this is driven by CEOs' disposition rather than party bias, supporting an ideologically asymmetric, environmentally contingent mechanism whereby shifts in partisan conflict increase the significance of the attentional and cognitive tendencies associated with conservatism in determining firm-level risk-taking. These findings extend the managerial relevance of macro-level research on partisan conflict, offering theoretical explanations that evince its ostensibly unpredictable effects on firms’ strategic investment decisions. • National partisan political conflicts induce shifts in CEOs' strategic risk-taking • Conservative CEOs pursue riskier investments in R&D when conflict is high. • This effect is attributable to CEO disposition rather than party political bias. • Shifts in risk-taking rely on conservatives' attentional and cognitive tendencies. • Explains firm heterogeneity in risk-taking in response to changing political conditions