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Political participation and entrepreneurial initial public offerings in China

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  • Feng, Xunan
  • Johansson, Anders C.
  • Zhang, Tianyu

Abstract

This paper examines the economic consequences of political participation by entrepreneurs in China. Using unique data on political participation and initial public offerings by entrepreneurial firms, we find that firms controlled by entrepreneurs who participate in politics exhibit superior post-IPO performance. We also find that firms characterized by political participation are subject to less underpricing. Furthermore, the superior performance is concentrated among firms that operate in an environment characterized by rich rent-seeking opportunities instead of abundant business opportunities, suggesting that political participation is facilitating rent seeking rather than serving simply as a proxy for political recognition for entrepreneurship.

Suggested Citation

  • Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2014. "Political participation and entrepreneurial initial public offerings in China," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 269-285.
  • Handle: RePEc:eee:jcecon:v:42:y:2014:i:2:p:269-285
    DOI: 10.1016/j.jce.2014.03.005
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    Cited by:

    1. Feng, Xunan & Johansson, Anders C., 2014. "Escaping political extraction: Political participation, institutions, and cash holdings in China," China Economic Review, Elsevier, vol. 30(C), pages 98-112.
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    3. Danglun Luo & Naqiong Tong & Guoman She, 2017. "City‐level political uncertainty and city‐level IPO activities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(5), pages 1447-1480, December.
    4. Malik Altaf Hussain & Malvika Tyagi, 2020. "Role of political connections in land investment: evidence from rural India," Constitutional Political Economy, Springer, vol. 31(3), pages 344-362, September.
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    6. Feng, Xunan & Hu, Na & Johansson, Anders C., 2016. "Ownership, analyst coverage, and stock synchronicity in China," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 79-96.
    7. Xunan Feng & Anders C. Johansson, 2017. "CEO Incentives in Chinese State-Controlled Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 65(2), pages 223-264.
    8. Shu Lin & Shu Tian & Eliza Wu, 2013. "Emerging Stars and Developed Neighbors: The Effects of Development Imbalance and Political Shocks on Mutual Fund Investments in China," Financial Management, Financial Management Association International, vol. 42(2), pages 339-371, June.
    9. Zhang, Karen & Truong, Cameron, 2019. "What’s the value of politically connected directors?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(3).
    10. Dapeng Cai & Jie Li, 2019. "To favor more or less? Corporate lobbying over preferential treatment to state-owned enterprises," Journal of Regulatory Economics, Springer, vol. 55(3), pages 334-357, June.
    11. Feng, Xunan & Johansson , Anders C. & Wang, Ying, 2018. "Strengthened State Capitalism: Nationalized Firms in China," Stockholm School of Economics Asia Working Paper Series 2018-51, Stockholm School of Economics, Stockholm China Economic Research Institute.
    12. Yuan Yang & Min Tang, 2020. "Finding the Ethics of “Red Capitalists”: Political Connection and Philanthropy of Chinese Private Entrepreneurs," Journal of Business Ethics, Springer, vol. 161(1), pages 133-147, January.
    13. Mingsheng Li & Desheng Liu & Jing Zhang & Luxiu Zhang, 2021. "Volatile market condition, institutional constraints, and IPO anomaly: evidence from the Chinese market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 1239-1275, March.
    14. Johansson, Anders C. & Luo, Danglun & Rickne, Johanna & Zheng, Wei, 2016. "Government Intervention in the Capital Allocation Process: Firm Employment as an IPO Selection Rule in China," Stockholm School of Economics Asia Working Paper Series 2016-40, Stockholm School of Economics, Stockholm China Economic Research Institute.
    15. Jia, Ning & Mao, Xinshu & Yuan, Rongli, 2019. "Political connections and directors' and officers' liability insurance – Evidence from China," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 353-372.
    16. Anders C. Johansson & Xunan Feng, 2016. "The state advances, the private sector retreats? Firm effects of China’s great stimulus programme," Cambridge Journal of Economics, Oxford University Press, vol. 40(6), pages 1635-1668.
    17. Johansson, Anders C. & Luo, Danglun & Rickne, Johanna & Zheng, Wei, 2017. "Government intervention in the capital allocation process: Excess employment as an IPO selection rule in China," China Economic Review, Elsevier, vol. 44(C), pages 271-281.
    18. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2015. "Mixing business with politics: Political participation by entrepreneurs in China," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 220-235.
    19. Feng, Xunan & Johansson, Anders C., 2018. "Firm Ownership, Political Participation, and Access to Finance through Public Bond Offerings in China," Stockholm School of Economics Asia Working Paper Series 2018-50, Stockholm School of Economics, Stockholm China Economic Research Institute.

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    More about this item

    Keywords

    Political participation; Entrepreneurial firms; Corporate governance; Initial public offerings; China;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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