Local Influence in the Central Government: Political Alignment and the Allocation of Stock Market Resources in China

69 Pages Posted: 4 Jun 2020 Last revised: 28 Dec 2021

See all articles by Yishuang Li

Yishuang Li

Department of Politics, New York University

Zhenhuan Lei

University of Wisconsin - Madison - La Follette School of Public Affairs; University of Wisconsin - Madison - Department of Political Science

Date Written: December 4, 2021

Abstract

Earlier research provides compelling evidence that national leaders distribute public resources to realize political ambitions. However, this research program often assumes that subnational players are merely passive receivers of the distributive policies set by national politicians. We challenge this view by uncovering the critical informational role of subnational governments. More specifically, we study the allocation of opportunities for initial public offerings (IPOs) in the Chinese stock market from 2004 to 2016. Although the Chinese IPO system is designed to avoid the influence of subnational governments and select well-performing firms for IPO based solely on efficiency criteria, we find that provincial politicians still strongly influence the allocation of IPOs in favor of loyal mayors by offering information strategically to central bureaucrats. Hence, firms in loyal subordinates’ cities are more likely to receive IPO approval. Moreover, these IPO approvals build up the performance of loyal mayors and boost their chances of promotion.

Keywords: bureaucracy, China, distributive politics, IPO, political alignment, stock market

Suggested Citation

Li, Yishuang and Lei, Zhenhuan, Local Influence in the Central Government: Political Alignment and the Allocation of Stock Market Resources in China (December 4, 2021). Available at SSRN: https://ssrn.com/abstract=3594874 or http://dx.doi.org/10.2139/ssrn.3594874

Yishuang Li (Contact Author)

Department of Politics, New York University ( email )

19 West 4th Street
New York, NY 10012
United States

Zhenhuan Lei

University of Wisconsin - Madison - La Follette School of Public Affairs ( email )

1225 Observatory Drive
Madison, WI 53705
United States

University of Wisconsin - Madison - Department of Political Science ( email )

Madison, WI
United States

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