Political connections and the process of going public: Evidence from China

We examine how political connections impact the process of going public. Specifically, we test how political connections impact the pricing of the newly offered shares, the magnitude of underpricing, and the fixed cost of going public. Based on the experience of the newly public firms from Chinese security markets and using multiple measures of political connections, we find robust evidence that the issuing firms with political connections reap significant preferential benefits in the process of going public. To be specific, we find that firms – irrespective of their ownership status – with greater political connections have relatively higher offering price, lower underpricing, and lower fixed costs during the going-public process.