Political Connections and Access to IPO Markets in China

Li, Guoping; Zhou, Hong

doi:10.2139/ssrn.2666153

Cited by 18 publications

(21 citation statements)

References 32 publications

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“…For example, an important and notable difference between majority and minority state ownership in corporate governance research rests on IPO approval. Prior studies on the regulatory benefits of IPO approval focus on SOEs or firms largely controlled by the government (Li & Zhou, ). But the current study focuses on entrepreneurial firms largely controlled by private owners with government investment as minority owners.…”

Section: Discussionmentioning

confidence: 99%

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Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

Wang

Jiao

et al. 2018

Corporate Governance

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Manuscript Type Empirical Research Question/Issue Prior studies on the role of state investment tend to focus on either majority state ownership or aggregating majority and minority state ownership. Drawing upon signaling theory, we theorize that the negative intent signaled by minority state ownership reduces initial public offering (IPO) market performance. In addition, we hypothesize that founders as chief executive officers and outside directors not from state‐owned enterprises, representing the positive signal of intent, can attenuate the negative effect of minority state ownership. Research Findings/Insights The empirical results, based on 274 small and private firms in China's newly launched stock market, provide support for the hypotheses based on price premium, first‐day turnover rate, first‐day price increase, underpricing, and Tobin's Q. Theoretical/Academic Implications To the best of our knowledge, this is the first study to examine how minority state ownership affects small and private firm IPO performance. It suggests new avenues of research on ownership structure and the principal‐principal problem in the corporate governance of emerging economies. This study reveals the distinctive nature and effect between controlling state ownership and minority state ownership. The current research also opens new avenues of research on applying signaling theory, signal of intent in particular, in an IPO study. Practitioner/Policy Implications This study reveals the negative intent signaled by minority state ownership in privately controlled firms at IPO due to the weak monitoring capacity, limited resource provision, and enhanced political interdependency between private controllers and minority state owners. As minority state ownership becomes a more salient phenomenon in emerging markets, it guides policy makers in governance choices for government‐funded firms.

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Section: Discussionmentioning

confidence: 99%

“…In developed economies, these measures have been shown to effectively capture investors' reactions to characteristics, corporate governance, and earning potential of IPO firms. Those measures have also been used in recent Chinese IPO studies (Li & Zhou, ; Piotroski & Zhang, ).…”

Section: Methodsmentioning

confidence: 99%

Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

Wang

Jiao

et al. 2018

Corporate Governance

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“…Unlike other countries, the government of China is a regulator in economic development with a multiple administrative hierarchy, each of which may have different impacts on corporate behaviors (Chang & Wu, ). Studies (Dong, Wei, & Zhang, ; Li & Zhou, ; Luo, Wang, & Zhang, ) have shown that companies with political connections enjoy many advantages in terms of bank loans, financial subsidies, and tax breaks, with significantly better corporate performance than those without political connections. In addition, companies are extremely vulnerable to the drag of imperfect market mechanisms in the development process.…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Carbon risk management and corporate competitive advantages: “Differential promotion” or “cost hindrance”?

et al. 2020

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Given the strengthening of carbon regulations and the launch of emission trading scheme in China, companies are facing tremendous pressure to reduce carbon emissions, suggesting the necessity of understanding whether carbon risk management may affect corporate financial benefits. Therefore, this paper empirically demonstrates the influence of carbon risk management on corporate competitive advantages. We find that the relationship between carbon risk management and corporate competitive advantages is a "kuznets curve" that exists only among firms with weak product competition. And this relationship tends to be weakened in firms with a distant administrative hierarchy. We conclude that the influence of low carbon management on corporate competitive advantages is complicated and subject to the firm's political relevance. K E Y W O R D S administrative hierarchical distance, carbon risk management, competitive advantages, resource-based view, sustainable development

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“…More specifically, Feng et al (2015) identified four ways through which political connections in China can add value: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to a regulated industry. In addition to an increase in performance, political connections can also increase the number of successful initial public offerings (IPOs; Li & Zhou, 2015) and are less likely involved in US Securities and Exchange Commission (SEC) enforcement actions (Correia, 2014), thus supporting, along with all of the above evidence, the benefits of political connection. In addition to an increase in performance, political connections can also increase the number of successful initial public offerings (IPOs; Li & Zhou, 2015) and are less likely involved in US Securities and Exchange Commission (SEC) enforcement actions (Correia, 2014), thus supporting, along with all of the above evidence, the benefits of political connection.…”

Section: Literature Review Of Political Connectionsmentioning

confidence: 99%

External sources of political connections: Financial advisors and Chinese acquisitions

Wang

2018

Int. J Fin Econ

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This study considers the effects of an external form of political connection, namely, politically connected financial advisors, on the value creation of Chinese acquiring firms over the period 2004–2014. Using data consisting of 1,623 Chinese mergers and acquisitions (M&As) deals, we show that politically connected financial advisors create significantly higher market value for acquiring firms, after controlling for firms' own political connections and reputation. Further analysis indicates that the appointment of political advisers can improve an acquiring firm's long‐term industry‐adjusted operating performance and help acquirers reduce bid premiums. We show that private firms and stock‐pay acquisitions are more likely to appoint politically connected financial advisors in M&A transactions, whereas our findings remain unchanged after controlling for endogeneities.

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Political Connections and Access to IPO Markets in China

Cited by 18 publications

References 32 publications

Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

Carbon risk management and corporate competitive advantages: “Differential promotion” or “cost hindrance”?

External sources of political connections: Financial advisors and Chinese acquisitions

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