Political Participation and Entrepreneurial Initial Public Offerings in China

Xunan Feng, Anders Johansson and Tianyu Zhang
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Tianyu Zhang: The Chinese University of Hong Kong

No 2011-17, Working Paper Series from Stockholm School of Economics, China Economic Research Center

Abstract: This paper examines the value of political participation by private entrepreneurs in China. Using a unique sample of all initial public offerings by entrepreneurial firms during 1994-2007 and political participation by the controlling entrepreneurs, we test the hypothesis that firms with entrepreneurs who participate in politics are able to exploit rent-seeking opportunities that normal firms do not have access to. We document that the long-run stock performance after the IPO of firms controlled by entrepreneurs who participate in politics is superior to that of common entrepreneurial firms. Our results also show that political participation has a significant positive effect on change in operating performance and a negative effect on first-day returns. Moreover, we find that economic development and local institutions are important for this value effect. The difference in performance is even larger in regions characterized by more abundant rent-seeking opportunities, indicating that the value effect of political participation likely originates from rent seeking. This finding is consistent with the hypothesis that political participation facilitates entrepreneurs’ rent seeking.

Keywords: Political participation; Entrepreneurial firms; Corporate governance; Initial public offerings; China (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 P48 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2011-03-01
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-pol and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Political participation and entrepreneurial initial public offerings in China (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hacerc:2011-017

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