The Value of Political Connections in Chinese IPO Market

41 Pages Posted: 21 Jan 2013

See all articles by Qigui Liu

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University

Jinghua Tang

School of Accounting and Finance

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Date Written: November 20, 2012

Abstract

This paper examines the value of political connections in the Chinese IPO market. We find a positive relationship between CEO/chairman’s political connections and the probability of IPO approval of entrepreneurial firms. We further identify that minority shareholders value those connections and give a market premium to the connected firms after the firms go public. We provide evidence that connected independent directors and PE/VC investors bring important networks which facilitate firms’ access to the IPO market, albeit the former complements and the latter substitutes the CEO/chairman’s connections. We argue that in emerging markets where government intervention is still prevalent, the value of political connections does exist and entrepreneurial firms usually build political connections through different ways in order to facilitate their access the IPO market and obtain a higher market premium.

Keywords: Political connections, IPO approval, Independent director, PE/VC

JEL Classification: G30, G38

Suggested Citation

Liu, Qigui and Tang, Jinghua and Tian, Gary Gang, The Value of Political Connections in Chinese IPO Market (November 20, 2012). Available at SSRN: https://ssrn.com/abstract=2204231 or http://dx.doi.org/10.2139/ssrn.2204231

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University ( email )

Hangzhou, Zhejiang Province 310058
China

Jinghua Tang

School of Accounting and Finance ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
18
Abstract Views
223
PlumX Metrics