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Do political connections matter in accessing capital markets? Evidence from China

Author

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  • Bao, Xiaolu
  • Johan, Sofia
  • Kutsuna, Kenji

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.

Suggested Citation

  • Bao, Xiaolu & Johan, Sofia & Kutsuna, Kenji, 2016. "Do political connections matter in accessing capital markets? Evidence from China," Emerging Markets Review, Elsevier, vol. 29(C), pages 24-41.
    • Handle: RePEc:eee:ememar:v:29:y:2016:i:c:p:24-41
    DOI: 10.1016/j.ememar.2016.08.009
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    More about this item

    Keywords

    IPO; Political connection; Start-ups; China; Emerging markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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