Corporate Political Activities and the SEC's Oversight Role in the IPO Process

• Published in: Journal of management studies Vol. 61; no. 2; pp. 375 - 412
• Main Authors: Gounopoulos, Dimitrios, Loukopoulos, Georgios, Loukopoulos, Panagiotis, Wood, Geoffrey
• Format: Journal Article
• Language: English
• Published: Oxford Blackwell Publishing Ltd 01.03.2024
• Subjects: agency theory; campaign funding; corporate political activities; Financial incentives; financial intermediaries; Financial reporting; information asymmetry; Initial Public Offerings (IPOs); political money contributions; reputation theory; Scrutiny; SEC comment letters; Security and Exchanges Commission; Social capital; Social pressure; state capture; Transparency
• ISSN: 0022-2380; 1467-6486
• DOI: 10.1111/joms.12892

We study how a regulator (Securities and Exchanges Commission; SEC) responds to IPOs that have a higher political profile. We find that IPOs with issuers (intermediaries) that actively pursue political strategies receive more (less) SEC comment letters than IPOs without such actors. Cross‐sectional analysis reveals that the IPO's political environment moderates the relationship between social pressure for more corporate transparency and SEC scrutiny. Additional tests indicate that the political activities of issuers (intermediaries) contribute to a less (more) efficient IPO process. Overall, our findings suggest that politically active intermediaries have stronger incentives to accurately portray the IPO financial reporting environment than politically active issuers because they have greater reputational and political capital at stake; quite simply, the former have more to lose. We draw out the implications for theory, in terms of agency and reputation.