Journal of Business Ethics

, Volume 134, Issue 4, pp 529–551 | Cite as

Social Capital, Informal Governance, and Post-IPO Firm Performance: A Study of Chinese Entrepreneurial Firms

  • Jerry X. Cao
  • Yuan Ding
  • Hua Zhang


Social capital can serve as informal governance in weak investor-protection regimes. Using hand-collected data on entrepreneurs’ political connections and firm ownership, we construct several original measures of social capital and examine their effect on the performance of entrepreneurial firms in China after their initial public offerings. Political connections or a high percentage of external investors tend to enhance firm performance, but intragroup related-party transactions commonly lead to performance decline. These forms of social capital have a strong influence on the performance of Chinese firms, whereas formal governance variables such as board size or board independence have little effect. Although social capital may serve as an informal governance mechanism and effectively substitute for formal governance mechanisms in an emerging market, this role of social capital raises several ethical concerns, notably the development of rent-seeking and crony capitalism.


Post-IPO performance Social capital Agency theory Entrepreneur Political connection China 



The authors would like to thank Douglas Cumming, Wenxuan Hou, Edward Lee (editors) and one anonymous reviewer, the participants at the European Accounting Association Annual Meeting (Ljubljana, Slovenia, May 2012), the 2012 Asian Finance Association (AsianFA) Annual Meeting (Taipei, July 2012), and the Conference on Sustainable and Ethical Entrepreneurship, Corporate Finance and Governance, and Institutional Reform in China (Beijing, April 2013) for their helpful comments and advice. The authors acknowledge financial support from the CEIBS Research Fund. The research assistance to Yvonne Yuan, Sophie Xiao, and Yuanyang Song is greatly appreciated. The authors also thank Ann Gallon for her much appreciated editorial help.


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  1. 1.Singapore Management UniversitySingaporeSingapore
  2. 2.China Europe International Business School (CEIBS)ShanghaiChina

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