Political Uncertainty and Capital Raising Through Private Offerings

Abstract

Private offerings raise 15% less capital during the four months preceding local U.S. gubernatorial elections relative to other private offerings issued in the same state and months in other years. The decline is driven by non-VC-backed firms, including those that later go public or get acquired, and concentrated in elections featuring unfamiliar candidates. Proceeds raised during the four months after unfamiliar elections are, however, not different from other periods, implying dead-weight costs. Firm fixed effects and novel event studies indicate that lower issuer quality does not explain the decline. The findings establish that political uncertainty reduces access to private financing.

Keywords: Political Uncertainty; Private Securities Offerings; Venture Capital;, Private Offerings, Venture Capital

JEL Classification: G3, G2, G24, G32, G34