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
Date Written: January 5, 2021
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: Suggested Citation