Research Discussion Papers, Bank of Finland
No 7/2009:
Political connections and the process of going public: evidence from China
Bill B Francis, Iftekhar Hasan ()
and Xian Sun
Abstract: We examine how political connections impact the process of
going public. Specifically, we test how political connections impact the
pricing of newly offered shares, the magnitude of underpricing, and the
fixed cost of going public. Based on experiences of the new public firms in
the Chinese security markets and using multiple measures of political
connections, we find robust evidence that issuing firms with political
connections reap significant preferential benefits from going public. To be
specific, we find that firms – irrespective of ownership arrangements –
with greater political connections have higher offering prices, less
underpricing, and lower fixed costs during the going-public process.
Keywords: political connections; IPO; emerging markets; (follow links to similar papers)
JEL-Codes: G24; G30; G32; G34; G38; H00; (follow links to similar papers)
49 pages, February 3, 2009
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