Political Alignment and the Allocation of Stock Market Resources in China

Conditionally accepted at the Journal of Political Institutions and Political Economy

78 Pages Posted: 4 Jun 2020 Last revised: 11 Nov 2022

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: November 10, 2022

Abstract

Earlier research shows that national leaders often distribute public resources to advance their private interests. This line of research often assumes that subnational governments are merely passive receivers of the central government's distributive policies. We question this view by studying how intergovernmental relations between cities and provinces affect the allocation of opportunities for initial public offerings (IPOs) in China. Although the China Securities Regulatory Commission (CSRC) is the only central agency that reviews IPO applications based on efficiency criteria, our analysis of IPO applications between 2004 and 2016 shows that provinces can help politically aligned cities obtain more IPOs. Further results based on a novel dataset on the CSRC's justifications for rejections show that provincial governments influence the CSRC's decision by hiding unfavorable information from the CSRC if the applicant's mayor is politically aligned with the province. These IPO approvals, in return, improve mayors' promotion prospects.

Keywords: Bureaucracy, China, Distributive Politics, Initial Public Offering, Political Alignment, Stock Market

Suggested Citation

Li, Yishuang and Lei, Zhenhuan, Political Alignment and the Allocation of Stock Market Resources in China (November 10, 2022). Conditionally accepted at the Journal of Political Institutions and Political Economy, 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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