IPO excessive financing, managerial power, and private benefits: evidence from the IPO market in China

Gang Zhao, Shangkun Liang and Weixing Wang

China Journal of Accounting Studies, 2017, vol. 5, issue 1, 73-99

Abstract: Excessive financing by means of an initial public offering (IPO) is an important issue in the resource allocation efficiency of the capital market that has deeply concerned the public and regulatory authorities. Within the Chinese context and applying the theory of managerial power, we discuss the influence of IPO excessive financing on the private benefits of top managers. Using data on companies listed in 2006–2011, we find that: (1) the top managers of listed companies with excessive financing obtain greater monetary and non-monetary private benefits; (2) this phenomenon is significant for both state-owned and non–state-owned firms; (3) in non–state-owned enterprises, the greater the managerial power, the greater the monetary and non-monetary private benefits top managers receive, whereas this relation does not exist in state-owned enterprises; and (4) the market responds negatively to companies with excessive financing that provide greater monetary private benefits to top managers, but there is no significant response to companies that provide greater non-monetary private benefits to top managers. This paper expands the research on the economic consequences of excessive financing via an IPO and managerial power and provides regulatory implications of such excessive financing.

Date: 2017
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DOI: 10.1080/21697213.2017.1292727

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