Political power, local policy uncertainty and IPO pricing

Gonul Colak, Dimitrios Gounopoulos, Panagiotis Loukopoulos () and Georgios Loukopoulos

Journal of Corporate Finance, 2021, vol. 67, issue C

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.

Keywords: Initial public offering; Underpricing; Political uncertainty; Legislative intervention; Congressional activity (search for similar items in EconPapers)
JEL-codes: G10 G14 G32 G39 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000286

DOI: 10.1016/j.jcorpfin.2021.101907

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