Do Political Connection of Mangers Promote Corporate Media Coverage? Evidence from IPO of Private Firms

Abstract

Because of the important influence of media on asset pricing, managers pay more and more attention to it. Especially during the period of major events, the motivation of media disclosure management by managers is particularly obvious. Usually, the improvement of media communication requires the help of professional institutions or personnel. In China, media as an important public resource, is mostly state-owned or has a certain government background. So does the political connection of managers help companies to obtain more media resources or favorable media coverage? We use the IPO data of listed private companies between 2006−2014 in domestic stock market, and research the effect of political connection of managers on corporate media disclosure and its market reactions. We find that managers’ political connection can help companies to improve their information environment, and in turn affect share price volatility. That is: (1) Managers’ political connection can help companies to get more media attention and more positive coverage tone during IPO. Moreover, the level of political connection is higher, the media coverage is more favorable, but the regional institutional environment can restrain the impact of political connection on media coverage in certain extent. (2) In addition, managers' political connection has a more impact on the four major newspapers from CSRC and geographical proximity media. (3) Finally, the improvement of media coverage by political connections will help to increase IPO underpricing, but it will lead to a reversal of stock prices in the medium or long term. The main contributions of this research are: (1) The current literature about corporate’s media disclosure management is mostly based on the perspectives of financial public relations management and executives’ experiences in media industry, and researches the behaviors of media disclosure management during scandals, mergers and acquisitions, and equity financing and its market reactions. In this article, we base on the background of executives’ political connection, and focus on how the company seeks the active influence on media coverage through political connection, so we expand and enrich the research perspectives and content of company's media disclosure management. (2) Most of the existing literature about political connections pays more attention to the impact of political connections on management decisions, such as business access, social responsibility, financing facilities, and so on, but pays less attention to their impact on company's media disclosure management. This research not only focuses on the possible influence of executives’ political connection on the media coverage, but also further analyzes its influence mechanism from the perspectives of regional institutional environment and media characteristics, so it provides new empirical evidence for research on the relationship between government and enterprise. (3) Based on examining of the impact of executives’ political connection on media reporting, we further test its influence on IPO underpicing, thus enriching the literature about the impact of media coverage on IPO underpicing.