Do political connections matter in accessing capital markets? Evidence from China |
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| Institution: | 1. Graduate School of Business Administration, Kobe University, Japan;2. Schulich School of Business, York University, Canada;1. Sprott School of Business, Carleton University, Ottawa, Canada;2. University of Macau, Macau;1. Department of Finance, National Taiwan University, Taiwan;2. College of Management & Innovation Center for Big Data and Digital Convergence, Yuan Ze University, Taiwan;3. Department of Finance, Ming Chuan University, Taiwan;1. York University Schulich School of Business, 4700 Keele Street, Toronto, ON, Canada, M3J1P7;2. China Europe International Business School, 699 Hongfeng Road, Pudong, Shanghai, China;3. Shanghai University of Finance and Economics, School of Public Economics and Administration, 777 Guoding Rd, Shanghai, China;1. School of Business Administration and Economics, The College at Brockport, State University of New York, Brockport, NY 14420, USA;2. School of Business, State University of New York at Oswego, Oswego, NY 13126, USA;3. Department of Finance, School of Management, Fudan University, Shanghai, China;1. Department of Business Administration, National Taipei University, Taiwan;2. College of Management & Innovation Center for Big Data and Digital Convergence, Yuan Ze University, Taiwan;3. School of Finance and Statistics, Hunan University, China;4. Department of Finance, Ming Chuan University, Taiwan;1. Univ. Lille, LSMRC, F-59000 Lille, France;2. Skema Business School, F-59777 Euralille, France;3. Université Côte d''Azur–SKEMA Business School, SKEMA Business School, Lille Campus, Department of Finance and Accounting, Avenue Willy Brandt, F-59777 Euralille, France |
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| Abstract: | We analyze the influence of political connections on firms' access to capital and the ensuing effect on the cost of raising capital. Using a dataset of 413 IPOs from 2009 to 2012, we exploit a research setting where government is still highly involved with the process. We find that firms rely on political connections to reduce IPO rejection risk as a firm's political connections are positively associated with the propensity of obtaining approval for an IPO. We further find that political connections are negatively associated with the cost of IPO and connected firms appear to perform better subsequent to their IPOs. |
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