The Consequences of Directors’ Political Donations for IPO Premium and Performance

Dimitrios Gounopoulos; Khelifa Mazouz; Geoffrey Wood

doi:10.1016/j.jcorpfin.2021.101888

The Consequences of Directors’ Political Donations for IPO Premium and Performance

Dimitrios Gounopoulos, Khelifa Mazouz, Geoffrey Wood

Research output: Contribution to journal › Article › peer-review

Abstract

This study explores the effect of directors’ political contributions on IPO valuations and performance. We find that such contributions bring significant benefits to IPO firms. More specifically, we show that the political contributions of board members, particularly those of CEOs and founders, improve both IPO value
and performance (in terms of underpricing and subsequent firm survival). We also find that the impact of directors’ political contributions on the IPO premium and underpricing is particularly strong among nonventure-backed firms, while the link between directors’ political contributions and firm survival is more
pronounced for venture-backed firms with strong corporate governance. Our findings are robust to endogeneity concerns and to alternative measures of political donation and IPO performance. The results confirm the relevance of signaling and resource dependency theories.

Original language	English
Article number	101888
Journal	Journal of Corporate Finance
Volume	67
Issue number	5
Early online date	14 Jan 2021
DOIs	https://doi.org/10.1016/j.jcorpfin.2021.101888
Publication status	Published - 30 Apr 2021

Keywords

IPO; offer price; political contributions; firm survival; signaling theory, resource dependency theory; political power

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title = "The Consequences of Directors{\textquoteright} Political Donations for IPO Premium and Performance",

abstract = "This study explores the effect of directors{\textquoteright} political contributions on IPO valuations and performance. We find that such contributions bring significant benefits to IPO firms. More specifically, we show that the political contributions of board members, particularly those of CEOs and founders, improve both IPO valueand performance (in terms of underpricing and subsequent firm survival). We also find that the impact of directors{\textquoteright} political contributions on the IPO premium and underpricing is particularly strong among nonventure-backed firms, while the link between directors{\textquoteright} political contributions and firm survival is morepronounced for venture-backed firms with strong corporate governance. Our findings are robust to endogeneity concerns and to alternative measures of political donation and IPO performance. The results confirm the relevance of signaling and resource dependency theories.",

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author = "Dimitrios Gounopoulos and Khelifa Mazouz and Geoffrey Wood",

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AB - This study explores the effect of directors’ political contributions on IPO valuations and performance. We find that such contributions bring significant benefits to IPO firms. More specifically, we show that the political contributions of board members, particularly those of CEOs and founders, improve both IPO valueand performance (in terms of underpricing and subsequent firm survival). We also find that the impact of directors’ political contributions on the IPO premium and underpricing is particularly strong among nonventure-backed firms, while the link between directors’ political contributions and firm survival is morepronounced for venture-backed firms with strong corporate governance. Our findings are robust to endogeneity concerns and to alternative measures of political donation and IPO performance. The results confirm the relevance of signaling and resource dependency theories.

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The Consequences of Directors’ Political Donations for IPO Premium and Performance

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