Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections

We analyze initial public offering (IPO) activity under political uncertainty surrounding gubernatorial elections in the United States. There are fewer IPOs originating from a state when it is scheduled to have an election. To establish identification, we develop a neighboring-states method that use...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2017-12, Vol.52 (6), p.2523-2564
Main Authors: Çolak, Gönül, Durnev, Art, Qian, Yiming
Format: Article
Language:English
Subjects:
Elections
Employment
Governors
Initial public offerings
Investments
Politics
Presidential elections
Quantitative analysis
Securities markets
State budgets
State elections
Uncertainty
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Summary:We analyze initial public offering (IPO) activity under political uncertainty surrounding gubernatorial elections in the United States. There are fewer IPOs originating from a state when it is scheduled to have an election. To establish identification, we develop a neighboring-states method that uses bordering states without elections as a control group. The dampening effect of elections on IPO activity is stronger for firms with more concentrated businesses in their home states, firms that are more dependent on government contracts (particularly state contracts), and harder-to-value firms. This dampening effect is related to lower IPO offer prices (hence, higher costs of capital) during election years.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109017000862