Firm Ownership, Political Participation, and Access to Finance through Public Bond Offerings in China

This study examines how state versus private ownership and political participation by private entrepreneurs affect access to financing through the corporate bond market in China. We find that state ownership is positively related to the likelihood that a firm issues bonds and that firms controlled by ultimate owners who participate in politics are significantly more likely to issue bonds. We also show that state ownership as well as political participation by the ultimate owner is positively associated with the amount firms raise in bond offerings. Moreover, state firms characterized by over-investment tend to increase their excess investments after a bond offering. For under-investing private firms, existing suboptimal investment levels are alleviated by bond offerings. In addition, we find that private firms significantly increase their R&D investments after a public bond offering, especially those controlled by owners who participate in politics. Finally, bond offerings are associated with a significant decline in market value for SOEs. For firms controlled by an owner who participates in politics, the opposite holds true. These findings highlight the need to improve the existing credit allocation via the bond market and the important role political capital plays for private firms in China.