Abstract

We study if political polarization increases partisan alignment in the supply chain.
Using top executive campaign contributions, we find that customer firms are more
likely to match with politically aligned supplier firms, and this trend increases over
time. These results are robust to controlling for heterogeneous time-varying trends by
firm characteristics, industry, and location. Using changes in state law and a natural
disaster as shocks to the supply chain, we find that partisan matches are less likely
to break during a supply chain disruption. Politically aligned suppliers have higher
markups and are less innovative, and, customer firms with more politically aligned
suppliers have lower R&D, and issue fewer patents and new products. Our results
are consistent with the predictions of a simple model showing that partisan alignment
along the supply chain can arise in response to increased uncertainty about the stability
of such relationships in a politically polarized environment.