The role of a political connection in IPO listings in China

Chin‐Hwa Lu, Chung‐Hua Shen, Meng‐Wen Wu and Yu‐Hang Zhang

Pacific Economic Review, 2025, vol. 30, issue 4, 175-205

Abstract: This study examines whether political connections can help a firm become listed on the Chinese stock exchanges. With the same fundamentals, we match firms that either have a political connection (PC firms) or do not (non‐PC firms) through the propensity score matching method, resulting in the only difference being political connection. We also consider the roles of corporate governance and earnings quality characteristics. Several findings are obtained. First, PC firms are more likely to pass initial public offering (IPO) than non‐PC firms. Second, political connection is more important to firms with weak fundamentals than those with strong ones. Third, political connections are more important to firms from non‐encouraged industries than those from encouraged ones passing the IPO examination. Fourth, establishing political connections helps firms with specific corporate governance or earnings quality characteristics to pass IPO. Finally, current political connections or higher government's bureaucratic administrative level helps a firm obtain IPO approval.

Date: 2025
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