Newswise — A new study from the University of Iowa finds that fewer privately held businesses are willing to go public during election years, suggesting that political uncertainty has a significant effect on business decisions.

The research examined initial public offering (IPO) activity by businesses headquartered in states with gubernatorial elections between 1988 and 2011. It found 15 percent fewer IPOs were conducted in states during election years, dropping from an average of 29 the year before an election to 25 during the election year itself.

Activity then rebounded significantly the year after an election, to an average 31, and then to 36 at the midpoint of the states’ gubernatorial election cycles.

Art Durnev and Yiming Qian, associate professors of finance in the UI Tippie College of Business and study co-authors, say the results show that business managers are wary of committing their firm’s resources during a time of political uncertainty and prefer to wait until the electoral ambiguity has settled down. The results also show that capital can be costlier because the offer prices are set lower than fair market value during election years, which makes it more expensive for firms to grow.

The study found the IPO depression is even more pronounced in states with more IPO activity, where the average number of IPOs dropped from 90 in the year before a gubernatorial election to 78 during an election year.

Firms that are especially susceptible to this dampening effect are those that rely more heavily on government contracts and those with businesses concentrated in their home states and thus more dependent on home state policies.

The paper, “Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections,” was co-authored with Gonul Colak of the Hanken School of Economics in Helsinki, Finland. It will be published in a forthcoming edition of the Journal of Financial and Qualitative Analysis and is currently available at