Political money contributions of U.S. IPOs

Abstract

We produce the first study to explore the effect of political money contributions on IPO valuation. Drawing evidence from the U.S., we show that both lobbying and PAC expenditure pay off on issue day as donors incur less underpricing, an effect that can be amplified by contribution size and strategic targeting of recipients. Donor IPOs also experience negative offer price revisions and lower aftermarket volatility. Collectively, our results offer new empirical grounding to information asymmetry and bookbuilding theories.

Local corporate misconduct and local initial public offerings

“…The positive relation between proceeds and underpricing contradicts the informational efficiency explanation but is consistent with the findings of Gounopoulos et al. (). Prior market returns are also positively related to IPO underpricing, suggesting that underpricing tends to increase after better stock market performance.…”

“…The positive and significant coefficients on VC backing and underwriter reputation are aligned with the findings of Beatty and Welch (1996) and Loughran and Ritter (2004). The positive relation between proceeds and underpricing contradicts the informational efficiency explanation but is consistent with the findings of Gounopoulos et al (2017). Prior market returns are also positively related to IPO underpricing, suggesting that underpricing tends to increase after better stock market performance.…”

“…Firm size is measured by Log (Assets), the natural logarithm of total assets at the end of the most recent fiscal year prior to the offering. Earnings are measured by Positive EPS Dummy, where the dummy variable is set to 1 for positive earnings per share (EPS) in the most recent fiscal year prior to the offering (Gounopoulos, Kallias, Kallias, & Tzeremes, 2017;Loughran & McDonald, 2013).…”

Determinants of Management Earnings Forecasts: The Case of Global Shipping IPOs

“…Firms tend to time their IPOs when information asymmetry is low (Bessler et al, ; Gounopoulos et al ., ). During upward‐trending periods, adverse selection costs tend to be relatively low.…”

Local Policy Risk and IPO Performance

“…However, there is limited evidence on the benefits of access to information related to policy outcomes for IPO issuers. A notable exception is the study Gounopoulos et al (2017), because it finds that contributions to political action campaigns or lobbying activities alleviate information asymmetry problems thereby relating negatively to IPO first-day returns. We complement and expand this study, as we show that one particular motive that justifies political activism for firms conducting an IPO is the reduction of the money left on the table, by hedging away the exposure to local policy risk.…”