The Consequences of Political Donations for IPO Premium and Performance

39 Pages Posted: 30 May 2018 Last revised: 23 Nov 2018

See all articles by Dimitrios Gounopoulos

Dimitrios Gounopoulos

University of Bath

Khelifa Mazouz

University of Bradford - School of Management

Geoffrey Wood

University of Essex - Essex Business School

Date Written: November 19, 2018

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 (November 19, 2018). 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

University of Essex - Essex Business School

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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