Political participation and entrepreneurial initial public offerings in China

• Published in: Journal of Comparative Economics Vol. 42; no. 2; pp. 269 - 285
• Main Authors: Feng, Xunan, Johansson, Anders C., Zhang, Tianyu
• Format: Journal Article
• Language: English
• Published: San Diego Elsevier Inc 01.05.2014; Elsevier BV
• Subjects: China; Corporate governance; Entrepreneurial firms; Entrepreneurs; Initial public offering; Initial public offerings; Participation; Political behavior; Political participation; Politics; China; Political participation; Corporate governance; G30; P48; Entrepreneurial firms; China; G32; Initial public offerings; G34
• ISSN: 0147-5967; 1095-7227
• DOI: 10.1016/j.jce.2014.03.005

•We analyze the relationship between political participation by business owners and post-IPO performance.•Firms controlled by entrepreneurs who participate in politics exhibit superior stock performance.•Such firms also exhibit superior operating performance.•Firms characterized by political participation are subject to less IPO underpricing.•The effect is stronger in regions with rich rent-seeking opportunities. This paper examines the economic consequences of political participation by entrepreneurs in China. Using unique data on political participation and initial public offerings by entrepreneurial firms, we find that firms controlled by entrepreneurs who participate in politics exhibit superior post-IPO performance. We also find that firms characterized by political participation are subject to less underpricing. Furthermore, the superior performance is concentrated among firms that operate in an environment characterized by rich rent-seeking opportunities instead of abundant business opportunities, suggesting that political participation is facilitating rent seeking rather than serving simply as a proxy for political recognition for entrepreneurship.