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Does political capital create value in the IPO market? Evidence from China

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  • Liu, Qigui
  • Tang, Jinghua
  • Tian, Gary Gang

Abstract

This study examines the value of political capital in the Chinese IPO market. We find a positive relationship between a politically connected executive and the probability of IPO approval of entrepreneurial firms. We further identify that shareholders value those connections and give a market premium to connected firms after the firms go public. We provide evidence that other types of political capital gained through external sources, such as politically connected sponsors and PE investors, also bring benefits to the firms in their IPO approval, and these connections substitute for the effect of the executive's political connections on IPO approval. We argue that in emerging markets where government intervention is still prevalent, political capital does create value and entrepreneurial firms usually build political capital to facilitate their access to the IPO market, although other types of political capital do not bring further benefits into the post-IPO market.

Suggested Citation

  • Liu, Qigui & Tang, Jinghua & Tian, Gary Gang, 2013. "Does political capital create value in the IPO market? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 395-413.
    • Handle: RePEc:eee:corfin:v:23:y:2013:i:c:p:395-413
    DOI: 10.1016/j.jcorpfin.2013.10.002
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    More about this item

    Keywords

    Political capital; IPO approval; Post-IPO performance; Emerging market;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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