Becoming Global Billionaires from Mainland China: Theory and Evidence
71 Pages Posted: 16 Oct 2019
Date Written: September 15, 2019
The increase in the number of global billionaires from mainland China is a puzzle viewed from the standpoint of ``extractive institutions''. Guided by a proposed conceptual framework relating socio-political backgrounds of the billionaire entrepreneurs to their observable financing decisions, I show, under conditions of an open economy, grassroots billionaire entrepreneurs (e.g., Jack Ma) could attenuate political economy as well as financial frictions via capital injections from foreign venture capitalists. Building a unique database, I find, using a human equation, that (i) the politically unconnected billionaire entrepreneurs financed by foreign venture capitalists are more likely to float their companies outside mainland China (mainly in Hong Kong and the U.S), use offshore financing vehicles, and enter into innovative sectors; and (ii) the politically connected global billionaire entrepreneurs, however, are strongly associated with a record of state-owned enterprise (SOE) restructuring.
Keywords: political economy, entrepreneurship, venture capital, China
JEL Classification: G10, L26, O31, P26, O53, F63
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