The Consequences of Political Donations for IPO Premium and Performance

Journal of Corporate Finance, Forthcoming

55 Pages Posted: 30 May 2018 Last revised: 6 Jan 2021

See all articles by Dimitrios Gounopoulos

Dimitrios Gounopoulos

University of Bath

Khelifa Mazouz

University of Bradford - School of Management

Geoffrey Wood

Western University

Date Written: January 5, 2021

Abstract

This study explores the effect of directors’ political contributions on IPOs’ valuation and subsequent performance. 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 long-term performance of the IPO firms. These findings do not depend on the directors’ political ideology or party affiliations and are robust to endogeneity concerns and to alternative measures of political donations and IPO performance. As a possible consequence of Citizens United, we also find that individual contributions of IPOs directors have tripled, with a trajectory of further increase. Our results confirm the relevance of signaling and resource dependence theories.

Keywords: initial public offering; offer price; non-market strategy; political contributions; signalling theory, resource dependency theory; political power

JEL Classification: G10, G14, G39

Suggested Citation

Gounopoulos, Dimitrios and Mazouz, Khelifa and Wood, Geoffrey, The Consequences of Political Donations for IPO Premium and Performance (January 5, 2021). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3181171 or http://dx.doi.org/10.2139/ssrn.3181171

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

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

Khelifa Mazouz

University of Bradford - School of Management ( email )

Emm Lane
Bradford, West Yorkshire Bd9 4JL
United Kingdom

Geoffrey Wood

Western University ( email )

1151 Richmond St
London, Ontario N6A 3K7
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
153
Abstract Views
942
rank
263,312
PlumX Metrics