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

Published online by Cambridge University Press:  04 December 2017

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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.

Research Article
Copyright © Michael G. Foster School of Business, University of Washington 2017 



We are grateful for the helpful comments and suggestions from James Ang, Meghana Ayyagari, Maria Boutchkova, Jonathan Brogaard (the referee), Tim Burch, Jarrad Harford (the editor), Yi Jiang, Alok Kumar, Timo Korkeamaki, Tim Loughran, and Gunnar Rosenqvist. We also thank the seminar participants at Hanken School of Economics, HEC Montreal, Florida State University, Ozyegin University, University of Edinburgh, University of Miami, Xiamen University, and the 2013 European Financial Management Association Conference. We thank Gregory Regenbaum for research assistance and Rachel Arndt for editorial assistance.


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