Political power, local policy uncertainty and IPO pricing

Gonul Colak*, Dimitrios Gounopoulos , Panagiotis Loukopoulos , Georgios Loukopoulos

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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 languageEnglish
Article number101907
Peer-reviewed scientific journalJournal of corporate finance
Volume67
Issue numberApril 2021
Pages (from-to)1-32
Number of pages32
ISSN0929-1199
DOIs
Publication statusPublished - 20.04.2021
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management

Sustainable Development Goals

  • GOAL 09: Industry, Innovation and Infrastructure

Areas of Strength and Areas of High Potential (AoS and AoHP)

  • AoS: Financial management, accounting, and governance

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