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

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  • Francis, Bill B.
  • Hasan, Iftekhar
  • Sun, Xian

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.

Suggested Citation

  • Francis, Bill B. & Hasan, Iftekhar & Sun, Xian, 2009. "Political connections and the process of going public: Evidence from China," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 696-719, June.
  • Handle: RePEc:eee:jimfin:v:28:y:2009:i:4:p:696-719
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    More about this item

    Keywords

    Political connections IPO Emerging markets;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • 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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H00 - Public Economics - - General - - - General

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