Do initial public offerings affect government policy and vice versa?

April 16, 2012 9:59 AM

How do investment banks, specifically initial public offerings, affect government policy and vice versa?
posted by espada0 to Law & Government (4 answers total)

Pretty broad question.

Investment banks, like all large corporations, hire lobbying firms, which advocate on the behalf of their clients (in this case the banks) for legislation and regulations which favor the clients' business.
posted by dfriedman at 10:00 AM on April 16, 2012

Response by poster: I should be more specific. Do specific actions of investment banks play any role in creating or affecting government policy, not just economic or monetary policy? For example, did the Facebook IPO or the Carlyle IPO have a political impact? The reverse is more obvious: financial regulatory policy, exchange rate policy, tax reforms, FDI reforms influence the economic and financial health of a country which in turn impacts the decisions of private firms to go public. However is this a one-way street? Can the processes of policy-making be affected by a decision of a private firm to go public or by a newly public firm offering stocks and securities on the open market?
posted by espada0 at 10:16 AM on April 16, 2012

The IPO process is often accused of being biased in favor of the banks (duh) who underprice IPOs so that they and their favored clients who will be first in line to buy will benefit from the leap in price when the hot stock is available to other investors in the general public. This often leads to overshooting the price, which further benefits the favored investors who get out during the public binge.

To try to answer the question, I believe that the debate over Google's IPO, way back in 200whatever, when they decided to do part of their IPO via dutch auction rather than the usual inside baseball, led to at least some discussion of changes in financial regulation and maybe even some talk about changes in law, though I don't think anything came of it, and we still have the same process as before, which is really good for the banks and less good for everyone else involved.

Is that the kind of thing you're thinking about?

And more generally, of course, the reality or possibility of mergers (which are usually driven by i-banks) often lead to changes in anti-trust regulation of laws.
posted by RandlePatrickMcMurphy at 10:35 AM on April 16, 2012

How do investment banks, specifically initial public offerings, affect government policy and vice versa?

IPOs are headline material and very profitable, but I don't think they're what drives Wall Street's approach to public policy.

The bond market is probably a better place to look. Over time the Fed and the bond market have developed a very interesting dance that's both very subtle and very out in the open. Look into the term "bond vigilante."

The other major area, which is somewhat related, is foreign lending. There is a long history of government and banks (commercial and investment) using one another to accomplish their goals via foreign lending. The history of JP Morgan & Co is filled with examples where the bank was seemingly acting like an arm of the US government and also where the government was seemingly acting like a debt collector for JP Morgan (and others).
posted by mullacc at 11:04 AM on April 16, 2012