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Corporate Political Connections and the IPO Process: The Benefits of Politically Connected Board Members and Managers

In: International Corporate Governance

Author

Listed:
  • Reza Houston
  • Stephen P. Ferris

Abstract

In this study, we examine the relationship between political connections of private firms and the initial public offering process. Using registration statement information, we create a unique database of politically connected IPO firms. We find that political connections are substitutes to high-quality underwriters and big four auditors. Politically connected firms manage earnings more highly upward than non-connected firms prior to the public offering. Politically connected firms also exhibit less underpricing than non-connected firms. Finally, politically connected IPO firms have superior post-IPO returns relative to non-connected IPO firms.

Suggested Citation

  • Reza Houston & Stephen P. Ferris, 2015. "Corporate Political Connections and the IPO Process: The Benefits of Politically Connected Board Members and Managers," Advances in Financial Economics, in: International Corporate Governance, volume 18, pages 125-163, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:afeczz:s1569-373220150000018005
    DOI: 10.1108/S1569-373220150000018005
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    More about this item

    Keywords

    Political connections; investment banking; government policy; government policy and regulation; G24; G34; G38; K21;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law

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