The consequences of political donations for IPO premium and performance

This study explores the effect of directors' political contributions on IPOs' valuation and firm survival. 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...

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Bibliographic Details
Published inJournal of corporate finance (Amsterdam, Netherlands) Vol. 67; p. 101888
Main Authors Gounopoulos, Dimitrios, Mazouz, Khelifa, Wood, Geoffrey
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.04.2021
Subjects
Firm survival
IPO
Offer price
Political contributions
Political power
Resource dependency theory
Signaling theory
Political power
Firm survival
Resource dependency theory
Offer price
IPO
Signaling theory
Political contributions
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Summary:This study explores the effect of directors' political contributions on IPOs' valuation and firm survival. 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 survivability of IPO firms. We find that the relationship between directors' political contributions and IPO premium is particularly strong among non-venture-backed firms, while the link between directors' political contributions and firm survival is more pronounced for venture-backed firms with strong corporate governance. Our findings are robust to endogeneity concerns and to alternative measures of political donations and IPO performance. Our results confirm the relevance of signaling and resource dependence theories. •We explore the effect of directors' political contributions on IPOs' valuation and firm survival.•Iindividual contributions by directors bring significant benefits to the IPOs.•Political contributions of board members, particularly those of CEOs and founders, increase the IPO premium and the survivability of IPO firms.•The relationship between directors' political contributions and IPO premium is particularly strong among non-venture-backed firms.•The link between directors' political contributions and firm survival is more pronounced for venture-backed firms with strong corporate governance.•We confirm the relevance of signaling and resource dependence theories.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2021.101888