Corporate Political Activities and the SEC's Oversight Role in the IPO Process
Dimitrios Gounopoulos, Georgios Loukopoulos, Panagiotis Loukopoulos, Geoffrey Wood
Journal of Management Studies · 2024 · Volume 61 · Issue 2
Abstract
We study how a regulator (Securities and Exchanges Commission; SEC) responds to IPOs that have a higher political profile. We find that IPOs with issuers (intermediaries) that actively pursue political strategies receive more (less) SEC comment letters than IPOs without such actors. Cross-sectional analysis reveals that the IPO's political environment moderates the relationship between social pressure for more corporate transparency and SEC scrutiny. Additional tests indicate that the political activities of issuers (intermediaries) contribute to a less (more) efficient IPO process. Overall, our findings suggest that politically active intermediaries have stronger incentives to accurately portray the IPO financial reporting environment than politically active issuers because they have greater reputational and political capital at stake; quite simply, the former have more to lose. We draw out the implications for theory, in terms of agency and reputation.
Keywords
corporate political activities, financial intermediaries, information asymmetry, Initial Public Offerings (IPOs), Security and Exchanges Commission, SEC comment letters, political money contributions, campaign funding, state capture, agency theory, reputation theory
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