Political connection of financial intermediaries: Evidence from China's IPO market

Donghua Chen; Yuyan Guan; Tianyu Zhang; Gang Zhao

doi:10.1016/j.jbankfin.2016.11.023

Journal of Banking & Finance Vol. 76 2017

Political connection of financial intermediaries: Evidence from China's IPO market

Donghua Chen¹; Yuyan Guan²; Tianyu Zhang³; Gang Zhao^4,5

¹ Nanjing University · ² City University of Hong Kong · ³ Chinese University of Hong Kong · ⁴ Shanghai University of Finance and Economics · ⁵ Zhejiang University of Finance and Economics

Abstract

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.

DOI: 10.1016/j.jbankfin.2016.11.023
Volume: 76
Pages: 15-31
Language: en
Sources: openalex crossref bibtex:phds-export.bib

Political connection of financial intermediaries: Evidence from China's IPO market

Abstract

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