aalto1 untyped-item.component.html
Does policy uncertainty affect IPO activity? International evidence from EPU indices
Loading...
URL
Journal Title
Journal ISSN
Volume Title
School of Business |
Master's thesis
Electronic archive copy is available via Aalto Thesis Database.
Authors
Date
Department
Major/Subject
Mcode
Degree programme
Language
en
Pages
61 + 5
Series
Abstract
The objective of this thesis is to contribute to the literature on real economic consequences of policy uncertainty and to examine how policy uncertainty affects IPO activity in an international research setting.
The data sample consists of 28,176 IPOs in 20 countries during 1990-2017. I use Economic Policy Uncertainty index (EPU) developed by Baker et al. (2016) to quantify policy uncertainty. The EPU index is constructed by performing a keyword search to major newspapers in each of my sample countries. This method offers several advantages over previously used policy uncertainty proxies (e.g. elections). My main analytical method is OLS regression which uses the EPU index and macroeconomic controls as the independent variables.
I find that higher level of policy uncertainty is associated with lower IPO activity at least during the contemporaneous quarter and three subsequent quarters. Furthermore, the results suggest that higher level of economic development, and higher government spending relative to GDP, are factors that make a country’s IPO market more vulnerable to policy uncertainty. Finally, cross-sectional subsample analysis indicates that VC-backed firms are significantly less affected by policy uncertainty than other firms. I do not find significant differences in how high-tech firms react to policy uncertainty compared to regular firms.
Lastly, it is crucial to understand that this approach also has limitations. Most importantly, the EPU index as a proxy for policy uncertainty is not exogenous like pre-scheduled elections. The economy is full of multidirectional relationships, and even with macroeconomic control variables, it is challenging to establish causality, especially because policy uncertainty tends to be countercyclical.