Political Connections and the Performance of China’s Stock Markets
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| Title | Political Connections and the Performance of China’s Stock Markets
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| Author | Zhou Hong and Li Guoping |
| Organization | Central University of Finance and Economics |
| Email | zhouhuge@163.com；gpli100@sina.com |
| Key Words | Political connections; China’s stock markets; Stock market regulation; |
| Abstract | During the past two decades, the growth of Chinese economy has been impressive, while the performance of China’s stock markets remarkably unsatisfactory. Based on previous findings that in China’s state-controlled going public process, politically connected companies are significantly more likely to receive favorable treatments from regulatory authorities, this study finds that in China’s stock markets, politically-connected companies are more likely to report deterioration in financial performance upon completing IPOs and to engage in law-breaking activities while less likely to be punished by regulatory authorities. Politically connected companies are also found to under-perform firms without political connections in terms of long-term financial performance. The ubiquitous importance of political connections which is resulted from rent-seeking under merit-review regulatory regime and is a fundamental feature of China’s stock markets suggests that China’s stock markets are somehow regulated under a de facto political connections-based regime. This may help explain the consistent poor performance of China’s stock markets. |
| Serial Number | WP638 |
| Time | 2014-08-05 |
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