The Role of Political Connections in IPO Pricing

We frame IPO pricing as an efficiency problem for prospective issuers and explore the effect of connections formed via lobbying and PAC (Political Action Committee) contributions as proxies for corporate political connections. Rather than imposing a regression-based framework, we allow relationships to manifest themselves in a data-driven manner. Our analysis reveals nonlinearities between IPO pricing efficiency and the two contribution avenues. We uncover relationships separately according to business sector and also whether or not firms are heavily regulated. We conclude that future work should be split by industry according to the degree of regulation