The Role of Political Connections in IPO Pricing

32 Pages Posted: 16 Jan 2018

See all articles by Dimitrios Gounopoulos

Dimitrios Gounopoulos

University of Bath

Konstadinos Kallias

Portsmouth Business School

David Newton

University of Bath - School of Management

Date Written: January 8, 2018

Abstract

We frame IPO pricing as an efficiency problem for prospective issuers and explore the effect of connections formed via lobbying and PAC (Political Action Committee) contributions as proxies for corporate political connections. Rather than imposing a regression-based framework, we allow relationships to manifest themselves in a data-driven manner. Our analysis reveals nonlinearities between IPO pricing efficiency and the two contribution avenues. We uncover relationships separately according to business sector and also whether or not firms are heavily regulated. We conclude that future work should be split by industry according to the degree of regulation.

Keywords: IPO underpricing; political connections; PAC and lobbying contributions; data envelopment analysis

JEL Classification: C6; G10; G14; G39

Suggested Citation

Gounopoulos, Dimitrios and Kallias, Konstadinos and Newton, David, The Role of Political Connections in IPO Pricing (January 8, 2018). Available at SSRN: https://ssrn.com/abstract=3098511 or http://dx.doi.org/10.2139/ssrn.3098511

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Konstadinos Kallias

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

David Newton

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

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