Local Policy Risk and IPO Performance

58 Pages Posted:

See all articles by Gonul Colak

Gonul Colak

Hanken School of Economics

Dimitrios Gounopoulos

University of Bath

Panagiotis Loukopoulos

University of Strathclyde

Georgios Loukopoulos

University of Bath, School of management

Date Written: October 30, 2018

Abstract

We investigate how the political landscape affects IPO underpricing. Using the concept of corporate proximity to political power, we find that local policy risk is positively related to initial aftermarket returns. Economically, our results also suggest that, ceteris paribus, a shift on the political map from an area completely opposed to the ruling party to being completely aligned translates to $12 million left on the table for the average issuer. Politically active firms successfully manage policy risk. We also demonstrate considerable heterogeneity on the impact of uncertainty emanating from the dynamic nature of the political landscape across electoral cycles, industries, states, and firm characteristics. Lastly, we document that policy risk has a substantial adverse impact on the survival of IPO issuers.

Keywords: G10, G14, G32, G39

JEL Classification: Initial Public Offerings, Political Uncertainty, Policy Risk

Suggested Citation

Colak, Gonul and Gounopoulos, Dimitrios and Loukopoulos, Panagiotis and Loukopoulos, Georgios, Local Policy Risk and IPO Performance (October 30, 2018). Available at SSRN: https://ssrn.com/abstract=

Gonul Colak

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

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

Panagiotis Loukopoulos

University of Strathclyde ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

Georgios Loukopoulos

University of Bath, School of management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
13
Abstract Views
43
PlumX