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The contingent value of CEO political connections: A study on IPO performance in China

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Abstract

This study investigates the effect of corporate political connections on IPO performance in an emerging economy. More specifically, it examines how CEO political connections affect the IPO performance of 428 firms in China from 2000 to 2004. The empirical results show that CEO political connections have a positive impact on firms’ ability to raise capital from public markets. The results also show that CEO political connections with the central government play a more important role in IPO performance than political connections with regional governments. In addition, the positive effect of central political connections on IPO performance is weaker in market-restricted regions but stronger in highly regulated industries. The findings highlight the contingent value of CEO political connections in an emerging economy.

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Notes

  1. Although research has also included implicit political connections as part of corporate political connections, such as familial relationships, personal networks with politicians (Peng & Luo, 2000), and corporate political networking activities (Li & Zhang, 2007), the current study focuses on explicit political connections (i.e., top executives’ prior work experiences in the government). The advantages of focusing on explicit political connections are twofold. First, explicit political connections are more straightforward and objective than informal connections (Hillman, 2005). Second, only explicit political connections are reported in IPO prospectuses. Therefore, only they can serve as prominent signals to public investors about the IPO firm’s political connections.

  2. We thank an anonymous reviewer for this comment.

  3. The results, which are not shown here, are available from the corresponding author on request.

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Authors and Affiliations

  1. Business School, The University of International Business and Economics, Beijing, China, 100029

    Jianfeng Wu & Zijie Li

  2. Sheldon B. Lubar School of Business, The University of Wisconsin—Milwaukee, Milwaukee, WI, WI53201, USA

    Sali Li

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  1. Jianfeng Wu
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Correspondence to Jianfeng Wu.

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All three authors contribute equally. This research was supported by the Social Science Research Fund from the Ministry of Education of China (10YJC630278) and the National Social Science Foundation of China (11&ZD004 and 11&ZD007). The authors are grateful to Ed Levitas, Paul Nystrom, Xinmin Zhang, and conference participants for valuable comments on earlier versions of this paper.

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Wu, J., Li, S. & Li, Z. The contingent value of CEO political connections: A study on IPO performance in China. Asia Pac J Manag 30, 1087–1114 (2013). https://doi.org/10.1007/s10490-012-9300-1

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