Local Policy Risk and IPO Performance

Colak, Gonul; Gounopoulos, Dimitrios; Loukopoulos, Georgios and Loukopoulos, Panagiotis (2019). Local Policy Risk and IPO Performance. In Financial Management Association 2019 Financial Management Association 2019.


An increase in concentration of political power can lead to greater policy discretion and lower effectiveness of checks and balances within a political system. We capture this form of policy risk by exploiting exogenous variation in the degree of partisanship between the U.S. federal government and local-state legislatures and examine its impact on IPO pricing. On average, a shift on the political map from an area completely opposed to the ruling party to one completely aligned translates into USD12 million being left on the table. This phenomenon is only prevalent among politically sensitive firms and has severe long-term implications.

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