Family Involvement, Political Connection and IPO Underpricing: Evidence from the Companies Listed on the SME Board of China

18 Pages Posted: 21 Aug 2015 Last revised: 27 Oct 2018

See all articles by Zhen Cao

Zhen Cao

Beijing IP Fund

Jianyu Zeng

Hanqing Advanced Institute of Economics and Finance, Renmin University of China

Qunzi Zhang

Shandong University

Date Written: August 20, 2015

Abstract

Based on hand-collected information on private companies listed in the Chinese SME stock market, this paper studies how family involvement and political connection affect firms’ IPO underpricing. Especially, we investigate how underpricing varies with higher- and ordinary level political connection, with institutional development level and with company size. We find that generally, companies with higher-level political connection reap the preferential benefit by having higher offering pricing, that is lower IPO underpricing rate; but companies with ordinary political connection don’t enjoy this benefit. Also, we find that in regions with poorer institutional environment (such as the central and western regions of China), political connection doesn’t affect underpricing, but family involvement helps firm achieving lower underpricing. In regions with well-developed institutional environment (such as the eastern regions), both family involvement and political connection significantly lower the underpricing. At last, we find that for large companies, political connection can lower the IPO underpricing rate significantly; but for small companies, family involvement can lower the IPO underpricing rate. Results are robust to various tests.

Keywords: Family Involvement; Political Connection; Institutional environment; IPO Underpricing

JEL Classification: G32, G34, G38

Suggested Citation

Cao, Zhen and Zeng, Jianyu and Zhang, Qunzi, Family Involvement, Political Connection and IPO Underpricing: Evidence from the Companies Listed on the SME Board of China (August 20, 2015). Available at SSRN: https://ssrn.com/abstract=2648147 or http://dx.doi.org/10.2139/ssrn.2648147

Zhen Cao

Beijing IP Fund ( email )

Jianyu Zeng

Hanqing Advanced Institute of Economics and Finance, Renmin University of China ( email )

59 Zhongguancun Street
Beijing, 100872
China

Qunzi Zhang (Contact Author)

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, SD Shandong 250100
China

HOME PAGE: http://www.econ.sdu.edu.cn/info/1257/42629.htm

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