The consequences of political donations for IPO premium and performance

Dimitrios Gounopoulos, Khelifa Mazouz, Geoffrey Wood

Research output: Contribution to journalArticlepeer-review

12 Citations (SciVal)
96 Downloads (Pure)

Abstract

This study explores the effect of directors' political contributions on IPOs' valuation and firm survival. We find that individual contributions by directors bring significant benefits to the IPO firms. Specifically, we show that political contributions of board members, particularly those of CEOs and founders, increase the IPO premium and the survivability of IPO firms. We find that the relationship between directors' political contributions and IPO premium is particularly strong among non-venture-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 donations and IPO performance. Our results confirm the relevance of signaling and resource dependence theories.

Original languageEnglish
Article number101888
JournalJournal of Corporate Finance
Volume67
Issue number5
Early online date14 Jan 2021
DOIs
Publication statusPublished - 30 Apr 2021

Keywords

  • Firm survival
  • IPO
  • Offer price
  • Political contributions
  • Political power
  • Resource dependency theory
  • Signaling theory

ASJC Scopus subject areas

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

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