Political participation and entrepreneurial initial public offerings in China

•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 partici...

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Bibliographic Details
Published in:Journal of Comparative Economics 2014-05, Vol.42 (2), p.269-285
Main Authors: Feng, Xunan, Johansson, Anders C., Zhang, Tianyu
Format: Article
Language:English
Subjects:
China
Corporate governance
Entrepreneurial firms
Entrepreneurs
Initial public offering
Initial public offerings
Participation
Political behavior
Political participation
Politics
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Summary:•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.
ISSN:0147-5967
1095-7227
DOI:10.1016/j.jce.2014.03.005