Policy risk, corporate political strategies, and the cost of debt

Local Policy Risk and IPO Performance

“…Given the adverse effect of PAI on the amount of proceeds raised by the IPO issuers, one would expect that these firms do not remain irresponsive, but rather they may device corporate political strategies that provide differential access to information throughout the legislative activity in order to mitigate the negative consequences of policy risk. Consistent with the view that political money contribution constitutes a hedging tool against policy risk (Bradley et al, 2016;Gross et al, 2016;Wellman, 2017), we demonstrate that underpricing is not significantly associated with policy risk for firms that either lobby or make PAC contributions. This implies that politically active firms are able to offset (at least in part) the negative of exposure to policy risk.…”

“…Our work contributes to the flourishing research on the impact of policy uncertainty on stock mispricing and the cost of financing activities, in general. Recent works have explored the effect of policy risk on the equity market (Boutchkova et al, 2012;Kim et al 2012;Pantzalis and Park, 2014;Brogaard and Detzel, 2015), the debt market (Francis, et al, 2014;Waisman et al, 2015;Bradley et al, 2016), as well as the options market (Goodell and Vähämaa, 2013;Kelly, Pastor, and Veronesi, 2016). The common theme of these studies is that capital markets are an informative gauge of the price of political uncertainty.…”

The effect of political uncertainty on the cost of corporate debt

“…Qi et al (2010) look at how cross-country variation in political rights affects the cost of corporate bonds, while we examine a similar question from the perspective of political uncertainty. Bradley et al (2014) examine the cost of debt in the context of firm's political strategy and contribution. Our paper looks at the impact of more general nationwide political environment.…”

Policy Uncertainty and the Dual Role of Corporate Political Strategies

“…One stream of the literature supports the political capital view that political connections enhance firm value through political rent-seeking behaviors by a connected firm (Faccio, 2006;Goldman, Rocholl, and So, 2009). Additionally, political connections have been shown to help firms access cheaper financing through equity (Boubakri et al, 2012), public debt (Bradley, Pantzalis, and Yuan, 2016), and bank loans (Houston et al, 2014), as well as through initial public offerings (IPOs) (Francis, Hasan, and Sun, 2009).…”