Political power, local policy uncertainty and IPO pricing

Gonul Colak, Dimitrios Gounopoulos, Panagiotis Loukopoulos, Georgios Loukopoulos

Research output: Contribution to journalArticlepeer-review

10 Citations (SciVal)


Greater partisan alignment among lawmakers enhances their ability to respond rapidly to adverse shocks, but it also undermines the quality of checks and balances and encourages excessive governmental intervention in local areas aligned with the ruling party. We investigate how this form of local policy risk affects IPO underpricing. One standard-deviation increase in political alignment between local politicians and the federal government translates into an extra $1.58 million being left on the table, which corresponds to 5.39% of the average valuation discount. This effect is concentrated in firms that are vulnerable to legislative interventions and has important long-term implications. Our robustness analysis also shows that our baseline results are not sensitive to the inclusion/exclusion of influential states and years with high IPO activity.

Original languageEnglish
Article number101907
JournalJournal of Corporate Finance
Early online date20 Feb 2021
Publication statusPublished - 1 Mar 2021

Bibliographical note

Funding Information:
This paper has been circulated also under the name “Local Policy Uncertainty and IPO Performance.”
This research is supported in part by KBS Faculty Seed Funding from the University of Limerick. We would like to thank the seminar participants from the Universities of Aberdeen, Bristol, and Hanken School of Economics as well as participants at the 2019 Panorisk (Angers) 2019, Financial Management Association (FMA, Glasgow), 2018 Irish Accounting and Financial Association (IAFA), the 2018 European Accounting Association (EAA) Conference, the 2018 Young Finance Scholar (YFS) Conference 2018, the World Finance Conference (Mauritius, 2018) and the EAA Talent Workshop 2018 for their helpful comments.


  • Congressional activity
  • Initial public offering
  • Legislative intervention
  • Political uncertainty
  • Underpricing

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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