IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp2454.html
   My bibliography  Save this paper

Discretionary Administrative Power and Conflicts of Interest in China's IPO Approvals

Author

Listed:
  • Heng Geng

    (Victoria University of Wellington)

  • Harald Hau

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute))

  • Hanzhang Zheng

    (University of Geneva and Swiss Finance Institute)

Abstract

China's IPO approval process co-opts audit firm representatives into the regulatory decision body, which creates conflict of interest and potential channels for corruption. We show evidence that co-opted auditors (i) do not differ in their auditing practice of listed firms from other auditors, but (ii) attract more borderline IPO clients that do not fully comply with the listing requirements, contributing to higher audit revenue growth, (iii) increase the chance of IPO approval for their borderline candidates, which (iv) afterwards underperform regular IPO stocks by 39% in terms of their average two-year buy and hold return. Moreover, (v) these borderline IPO firms show poorer profitability than matched firms, suggesting potential misrepresentation of firm prospects at the IPO stage.

Suggested Citation

  • Heng Geng & Harald Hau & Hanzhang Zheng, 2024. "Discretionary Administrative Power and Conflicts of Interest in China's IPO Approvals," Swiss Finance Institute Research Paper Series 24-54, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2454
    as

    Download full text from publisher

    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4976312
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    corruption of professional standards; IPO underperformance; regulatory failure;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp2454. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.