Political power, local policy uncertainty and IPO pricing

Gonul Colak; Dimitrios Gounopoulos; Panagiotis Loukopoulos; Georgios Loukopoulos

doi:10.1016/j.jcorpfin.2021.101907

Political power, local policy uncertainty and IPO pricing

Gonul Colak, Dimitrios Gounopoulos, Panagiotis Loukopoulos, Georgios Loukopoulos

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Abstract

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 language	English
Article number	101907
Journal	Journal of Corporate Finance
Volume	67
Early online date	20 Feb 2021
DOIs	https://doi.org/10.1016/j.jcorpfin.2021.101907
Publication status	Published - 1 Apr 2021

Bibliographical note

This paper has been circulated also under the name “Local Policy Uncertainty and IPO Performance.”

Acknowledgements

We are grateful to Daniella Acker, Pat Akey, Carol Alexander, Vladimir Atanasov, Wolfgang Aussenegg, Sonny Biswas, Alice Bonaime, Sabri Boubaker, Daniel Bradley, Thomas Chemmanur, Ephraim Clark, Mark Clatworthy, Douglas Cumming, Viet Dang, Susanne Espenlaub, Mara Faccio, Marc Goergen, Paula Hill, Balint Horwath, Tim Jenkinson, Ranko Jelic, Andreas Kaeck, Kirak Kim, Piotr Korczak, Timo Korkeamaki, Roni Michaely, Vikram Nanda, David Newton, Neslihan Ozkan, Christos Pantzalis, Jung Chul Park, Pietro Perotti, Jay Ritter, Mariano Scapin, Ben Sila (FMA Discussant), Anh Tran, David Storey, Laura Wellman, Mike Wright, Fangming Xu, and Liyi Zheng.

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. Special thanks go to Jonathan Berk for his useful comments and suggestions. This paper is the recipient of the Best Paper Award at the 2018 Young Finance Scholar Conference in Brighton.

Keywords

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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10.1016/j.jcorpfin.2021.101907

Manuscript Political Power Local Policy Uncertainty.PDFAccepted author manuscript, 794 KBLicence: CC BY-NC-ND

https://strathprints.strath.ac.uk/75549/

Cite this

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Political power, local policy uncertainty and IPO pricing

Abstract

Bibliographical note

Acknowledgements

Keywords

ASJC Scopus subject areas

Access to Document

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