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Political connections and access to IPO markets in China

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  • Li, Guoping
  • Zhou, Hong

Abstract

Using hand-collected data on IPOs by private-owned enterprises, this article examines the regulatory benefits of political connections in China's state-controlled going public process, a subject that has rarely been investigated in existing literature. This article makes the following findings: first, political connections have significant positive impact on enterprises' chances of being approved for IPOs; second, enterprises with political connections are significantly more likely to receive preferential treatments (e.g., higher offering price-to-earning ratio) from regulatory authorities; third, enterprises with political connections are significantly less likely to be selected for pre-IPO on-site auditing by regulatory authorities. The findings of this article may provide answer to the question why China has been so reluctant to adopt disclosure-based regulatory regime as well as insights into the puzzle of the consistent poor performance of China's stock markets.

Suggested Citation

  • Li, Guoping & Zhou, Hong, 2015. "Political connections and access to IPO markets in China," China Economic Review, Elsevier, vol. 33(C), pages 76-93.
  • Handle: RePEc:eee:chieco:v:33:y:2015:i:c:p:76-93
    DOI: 10.1016/j.chieco.2015.01.009
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    More about this item

    Keywords

    Political connections; Private-owned enterprise; IPO; China's stock market; Regulatory benefits of political connections;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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