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

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.