This paper shows that incentives created by the impending turnover of local politicians can accelerate the pace of initial public offering (IPO) activity in certain politicized environments. Focusing on China, we exploit a research setting where politicians are rewarded for capital market development, firms rely on political connections for access to capital, rent-seeking behavior is rampant, and the objectives of the state might not be to maximize capital market efficiency. We find that the rate of exchange eligible firms engaging in an IPO temporarily increases in advance of impending political promotion events. This effect holds for both state-owned and non-state-owned entities. For state-owned firms, the effect is strongest in those provinces where the politicians are more likely to be rewarded for market development activity. For non-state-owned firms, the temporary increase in IPO activity appears to be (rationally) opportunistic in nature, with the effect stronger around events more likely to disrupt the firms' political connections. Promotion period IPOs underperform non-promotion period IPOs in terms of both future financial performance and long-run stock returns, have controlling shareholders who retain a larger fraction of the company, and are more likely to divert proceeds away from their intended use after the offering.

Using a sample of 231 firms in Hong Kong, Singapore, and Taiwan, we examine the changes in firms' accounting practice around leadership successions-the turnovers of chairmen. We find that the successions are associated with reduction in the firms' unsigned discretionary accruals and an increase in timely loss recognition. We argue that the incumbent chairmen cannot transfer most of their unique assets, such as reputation and political/social networks, to their successors, resulting in reduced relationship-based contracting post succession. This change from relationship-based to market-based contracting also shifts the firms to a less insider-based accounting system. Moreover, we find that the extent of the shift in accounting is larger in founder successions ( turnovers of chairmen that are founders) than in subsequent ( non-founder) successions, possibly because the loss of unique assets is more pronounced in the first succession than in subsequent successions.

We examine how adjustments to earnings during year-end audits affect measures of earnings quality. There are four key findings. First, audit adjustments cause earnings to become smoother and more persistent. Second, the adjustments result in higher accrual quality. Third, audit adjustments have a larger negative effect on signed accruals than absolute accruals. Fourth, the adjustments do not reduce the discontinuity in the earnings distribution around zero. These findings are of interest to researchers who use earnings properties as proxies for earnings quality and audit quality. However, we caution that our findings for China may not generalize to other countries.

Investor protection is associated with greater investment sensitivity to q and lower investment sensitivity to cash flow. Finance plays a role in causing these effects; in countries with strong investor protection, external finance increases more strongly with q , and declines more strongly with cash flow. We further find that q and cash flow sensitivities are associated with ex post investment efficiency; investment predicts growth and profits more strongly in countries with greater q sensitivities and lower cash flow sensitivities. The paper's findings are broadly consistent with investor protection promoting accurate share prices, reducing financial constraints, and encouraging efficient investment.

We study how Chinese private entrepreneurs benefit from participating in politics. Using original hand-collected data on listed firms controlled by private entrepreneurs, we document a significant positive relationship between political participation and subsequent change in firm performance. We also provide evidence that the change in social status cannot explain the change in performance. We then identify several ways through which firms gain preferential treatment when the controlling entrepreneur participates in politics: better access to debt financing, preferential tax treatment, more government subsidies, and superior access to regulated industries.

We examine how firms respond to requests for enhanced disclosure that we make on an online investor platform. Exploiting variation in firms' customer and supplier disclosures, we ask a randomized set of non-disclosing firms to provide information on their customers' and suppliers' identities. We find that the firms' probability of disclosure depends on the basis we give for the demand—requests appealing to disclosure's usefulness to investors lead to more frequent disclosure, while those appealing to regulators' preference for disclosure lead to less frequent disclosure. The requests we make on the platform lead to more frequent customer- and supplier-related inquiries from other platform users. We also find that the treatment firms' disclosure of customer and supplier information improves in the next period's regulatory filings. The findings suggest that investor platforms can enhance corporate transparency by increasing retail investors' ability to demand information.

Opponents of mandatory rotation argue that a change of partner is bad for audit quality, as it results in a loss of client-specific knowledge. On the other hand, proponents argue that a change of partner is beneficial, as it results in a positive peer review effect and a fresh perspective on the audit. We test the impact of mandatory partner rotation on audit quality using a unique dataset of audit adjustments in China. Our results suggest that mandatory rotation of engagement partners results in higher quality audits in the years immediately surrounding rotation. Specifically, we find a significantly higher frequency of audit adjustments during the departing partner's final year of tenure prior to mandatory rotation and during the incoming partner's first year of tenure following mandatory rotation.

Using a sample of Chinese Initial Public Offerings (IPOs) from 2006 to 2011, we document that politically connected (PC) underwriters increase the likelihood of clients’ IPO applications being approved by the Chinese Securities Regulatory Commission (CSRC). We further show that PC underwriters charge premium underwriting fees. Consistent with the rent-seeking argument, we find that minority shareholders’ interests may be impaired as indicated by post-IPO underperformance. We do not detect significant differences in the underpricing of IPO deals underwritten by PC versus non-PC investment banks.