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 of CEOs and founders, increase the value and performance(in terms of underpricing and subsequent survivability) of IPO firms. We find that the impact of directors’ political contributions on the IPO premium and underpricing isparticularly strong among non-venture-backed firms, while the link between directors’ political contributions and firm survival is more pronounced forventure-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