Political connection of financial intermediaries: Evidence from China's IPO market

Chen, Donghua; Guan, Yuyan; Zhang, Tianyu; Zhao, Gang

doi:10.1016/j.jbankfin.2016.11.023

Cited by 125 publications

(80 citation statements)

References 34 publications

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“…Recent literature, reflecting the effects of the 2007-2008 financial crisis, has noted that intermediation chains have become longer over time (Adrian & Shin, 2010), subject to greater moral hazard (Di Maggio & Tahbaz-Salehi, 2014), and cut across existing regulatory boundaries. Financial intermediation therefore reflects the complexity of network relationships between individuals and institutions and may also, depending on the character of institutions and their regulation, have a significant political character (Chen, Guan, Zhang, & Zhao, 2017).…”

Section: Conceptualizing Entrepreneurshipmentioning

confidence: 99%

Innovation, intermediation, and the nature of entrepreneurship: A historical perspective

Toms

Wilson

Wright

2019

Strategic Entrepreneurship

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Research Summary We consider two sources of innovation, technical and financial, and examine their separate and joint impacts, through the process of financial intermediation, on the nature of entrepreneurial opportunity. These impacts are time dependent and reflect the institutional context of entrepreneurship. As illustrations, we investigate three historical episodes, ranging from the product led innovations of the industrial revolution, to the closely aligned innovations of the buyout wave of the 1980s to the more recent effects of finance led innovation. We identify systematic underlying factors that can cause significant differences in the entrepreneurial opportunity set. Managerial Summary We provide lessons from three historical periods regarding how policy toward entrepreneurship might ensure technical and financial innovations are successfully intermediated. This implies an alliance‐based notion of entrepreneurship, underpinned by enabling systems of governance and suitable institutions reduced dependence on specific individuals or generations. A balance also should be struck to mitigate risky investment through sharing, and specifically equalizing rights and information between borrowers and lenders. Regulatory changes should discourage capital and information hoarding and support risky lending to asset‐backed, knowledge‐based industrial projects.

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Section: Conceptualizing Entrepreneurshipmentioning

confidence: 99%

Innovation, intermediation, and the nature of entrepreneurship: A historical perspective

Toms

Wilson

Wright

2019

Strategic Entrepreneurship

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“…Therefore, personal connections play a vital role in the Chinese capital market and further increase the uncertainty. Chen et al [36] considered that political connections play an important role in economic activities, especially in emerging markets, and show that underwriter managers' political connections promote the likelihood of initial public offering (IPO) approval.…”

Section: Literature Review and Hypothesesmentioning

confidence: 99%

The Influence of Risk Culture on the Performance of International Joint-Venture Securities

Tang

Wang

et al. 2020

Sustainability

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With the development of economic globalization, culture is a key factor supporting the sustainability of foreign direct investment (FDI), especially for multinational enterprises. This paper takes the Chinese capital market as a sample and, combined with interviews with managers of international joint-venture securities (IJVS), finds that the culture of participants formed in developed and emerging capital market has a significant impact on the performance of IJVS. Using the degree of price fluctuation to measure the risk culture of each capital market, this paper observes that the risk culture in the Chinese capital market is significantly stronger than that of developed countries. This paper also finds that the stronger the risk culture IJVS shareholders have, the better they can adapt to the environment of the Chinese capital market and the better the performance they can achieve. Furthermore, risk culture distance, calculated by the risk culture differences between foreign shareholders and Chinese capital market, are significantly negatively correlated with IJVS performance and efficiency.

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“…For a long time, the aim of the Chinese capital market, especially the IPO market, was to facilitate the corporatization of state-owned firms. Extant research generally notes that China's IPO market has undergone three main stages (Chen, Guan, Zhang, & Zhao, 2017;Liu, Tang, & Tian, 2013). In the first stage, the IPO market was directly controlled by the central government using a quota system, and the IPO quota was a scarce resource tightly controlled by the central government (Piotroski & Zhang, 2014).…”

Section: Overview Of China's Ipo Marketmentioning

confidence: 99%

“…Under the quota system, each province received its IPO quota annually. The province identified prospective IPOs based on applications by firms in the province, and those firms would need to obtain approval from the central government (Chen et al, 2017). Under the channel system adopted in 2000, which is the second stage, regulators assigned channels directly to sponsors (underwriters) in accordance with their size and past performance.…”

Section: Overview Of China's Ipo Marketmentioning

confidence: 99%

“…This system allows for more sponsor involvement and influence than did the previous systems, because sponsors are not assigned a certain number of channels in advance. Thus, sponsors have stronger incentives to select and monitor their client firms more diligently than before, and there is a stronger competition among sponsors and firms to obtain approval for IPO by the central government (Chen et al, 2017). This system is intended to further introduce market-based institutions into the IPO market by promoting increased competition, and it is hoped that the system raises the quality of the IPO firms.…”

Section: Overview Of China's Ipo Marketmentioning

confidence: 99%

See 1 more Smart Citation

Product diversification strategy, business group affiliation, and IPO underpricing: A study of Chinese firms

Wang

Wan

Yiu

2018

Strategic Entrepreneurship

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Research Summary: Extant research has largely ignored if and how product diversification strategy influences IPO performance. We intend to fill this gap in the literature, especially in relation to transition economies where the role of diversification is institutionally bound. Specifically, drawing on the strategic actions and political connections arguments, we contend that the level of a firm's product diversification has a positive relationship with IPO underpricing. Given the prominent role of business groups in shaping firms’ diversification strategies in transition economy, we further examine whether business groups’ nonmarket capital—political, relational, and reputational capital—moderates the relationship between product diversification strategy and IPO underpricing. Managerial Summary: Due to the lack of transparency, investors in transition economies face higher ex ante uncertainties and have to bear more investment risks. As such, IPO firms have to “leave more money on the table” to compensate investors. This study aims to answer the question of whether and how an IPO firm's corporate strategy and business group affiliation affect investors' perceived uncertainties and, thus, the need to leave a large amount of money on the table to compensate investors. Using a sample of IPO firms in China, this study finds that the nonmarket capital that stems from business group affiliation helps mitigate the uncertainties investors perceive with higher levels of diversification, thus reducing the need for IPO firms to discount their offerings too much so that they can retain more wealth for business development.

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Political connection of financial intermediaries: Evidence from China's IPO market

Cited by 125 publications

References 34 publications

Innovation, intermediation, and the nature of entrepreneurship: A historical perspective

Innovation, intermediation, and the nature of entrepreneurship: A historical perspective

The Influence of Risk Culture on the Performance of International Joint-Venture Securities

Product diversification strategy, business group affiliation, and IPO underpricing: A study of Chinese firms

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