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Political connections and the process of going public: Evidence from China

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Author Info
Francis, Bill B.
Hasan, Iftekhar
Sun, Xian

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Abstract

We examine how political connections impact the process of going public. Specifically, we test how political connections impact the pricing of the newly offered shares, the magnitude of underpricing, and the fixed cost of going public. Based on the experience of the newly public firms from Chinese security markets and using multiple measures of political connections, we find robust evidence that the issuing firms with political connections reap significant preferential benefits in the process of going public. To be specific, we find that firms - irrespective of their ownership status - with greater political connections have relatively higher offering price, lower underpricing, and lower fixed costs during the going-public process.

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File URL: http://www.sciencedirect.com/science/article/B6V9S-4VGWJSM-1/2/a16fbd0df24382452ea57e3d1697ad0a
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Publisher Info
Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 4 (June)
Pages: 696-719
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Handle: RePEc:eee:jimfin:v:28:y:2009:i:4:p:696-719

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Web page: http://www.elsevier.com/locate/inca/30443

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Related research
Keywords: Political connections IPO Emerging markets;

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  8. Reena Aggarwal & Nagpurnanand R. Prabhala & Manju Puri, 2002. "Institutional Allocation in Initial Public Offerings: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(3), pages 1421-1442, 06. [Downloadable!] (restricted)
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  12. Reena Aggarwal & Pat Conroy, 2000. "Price Discovery in Initial Public Offerings and the Role of the Lead Underwriter," Journal of Finance, American Finance Association, vol. 55(6), pages 2903-2922, December. [Downloadable!] (restricted)
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  20. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December. [Downloadable!] (restricted)
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  23. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1994. "Voucher privatization," Journal of Financial Economics, Elsevier, vol. 35(2), pages 249-266, April. [Downloadable!] (restricted)
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  24. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September. [Downloadable!] (restricted)
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