Political instability, access to private debt, and innovation investment in China

Cumming, Douglas J.; Rui, Oliver M.; Wu, Yiping

doi:10.1016/j.ememar.2016.08.013

Cited by 80 publications

(36 citation statements)

References 28 publications

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“…However, the managerial forecast ability plays a mitigating role in the politically connected firms. These results are consistent with Cumming et al (2016) that political connections mitigate the financial constraint on the investment. 12…”

Section: Accepted Manuscriptsupporting

confidence: 89%

“…In Panel D, we investigate the effect of political connections since political connections help firm access to bank loans (Cumming et al, 2016). We define a firm as with political connections if at least one of its senior managers (including directors) is or was government official, the People's Congress (PC) member or the Chinese People's Political Consultative Conference (CPPCC) member.…”

Section: Extension Analysesmentioning

confidence: 99%

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How does credit market distortion affect corporate investment efficiency? The role of managerial forecast

Wang

Chen

Huang

et al. 2018

Finance Research Letters

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Highlights Credit supply distortion adversely impacts corporate investment efficiency. Managerial forecast ability mitigates the adverse effect of credit supply distortion for non-SOEs but not for SOEs. Negative credit supply distortions have a greater impact on corporate investment efficiency and managerial forecast ability is important in reducing underinvestment. Financial stability should be properly considered within the monetary policy framework. AbstractThe purpose of this paper is to study the interaction among corporate investment efficiency, credit supply distortion and managerial forecast ability in China. We provide robust evidence that credit distortion adversely affects corporate investment efficiency, while better managerial forecast ability mitigates this negative effect. Subsample analyses show that managerial forecast ability mitigates the adverse effect of credit supply distortion for non-state-owned enterprises but not for state-owned enterprises. We also find evidence that negative credit supply distortions have a greater impact on corporate investment efficiency and managerial forecast ability is particularly important in reducing underinvestment.

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Section: Accepted Manuscriptsupporting

confidence: 89%

Section: Extension Analysesmentioning

confidence: 99%

How does credit market distortion affect corporate investment efficiency? The role of managerial forecast

Wang

Chen

Huang

et al. 2018

Finance Research Letters

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“…For example, political connections determine access to equity capital in the Chinese mainland (Bao et al 2016), as well as final offer price levels in A-share listings (Li and Zhou 2015). Recent evidence in Cumming et al (2016) also suggests that a Chinese borrower's political profile determines both its access to debt and concomitant expenditures on R&D.…”

Section: Table 1b Reports Descriptive Statistics For All Variables Inmentioning

confidence: 99%

The Role of Governance and Bank Funding in the Determination of Cornerstone Allocations in Chinese Equity Offers

McGuinness

2019

JRFM

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This article investigates the causal factors underlying cornerstone investor (CI) participation in initial public offerings in China’s offshore Hong Kong market. Prospectus-based declarations on such allocations suggest that CI undertakings offer strong certification effects. Entrepreneurs planning for IPO thus have a material incentive to court CIs. The present analysis reveals that a firm’s pre-IPO financials and governance attributes strongly correlate with success in this field. Specifically, CI participation is greater in issuers with established long-term loan positions. Firms housing younger CEOs and a greater number of family-connected board officers also generate more CI interest. In contrast, the fraction of independent directors and women on boards exert minimal effect. However, further analysis reveals that greater independent director presence strongly supports CI participation in family-centric entities, but imparts little to no effect on such investment in either state-run or non-family-controlled private issuers. Additionally, an issuer’s political connections galvanize CI participation. Moreover, the present study highlights the importance of family resources (in non-state sponsored entities) and political connections (in state-held firms) in drawing-in CI involvement. Given the spread of CI arrangements to other primary market settings, the present enterprise also offers guidance on anchor investment elsewhere.

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“…Meanwhile, majority state ownership usually has greater intention for resource provision using political connections (Li et al, 2008), which can boost investor confidence and in turn lead to higher offering prices, lower fixed costs, and less underpricing (Francis et al, 2009). SOEs, through stable access to talent, financial resources, and technological resources, may intend to keep a sustained commitment to R&D to enable patenting (Cumming, Rui, & Wu, 2016).…”

Section: Signal Of Intent: Minority State Ownershipmentioning

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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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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Political instability, access to private debt, and innovation investment in China

Cited by 80 publications

References 28 publications

How does credit market distortion affect corporate investment efficiency? The role of managerial forecast

How does credit market distortion affect corporate investment efficiency? The role of managerial forecast

The Role of Governance and Bank Funding in the Determination of Cornerstone Allocations in Chinese Equity Offers

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

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