Do Political Connections Help Firms’ Accessing the IPO Market?

Abstract

This paper examines the effect of political connections on firms’ access to Chinese IPO market. We find a positive relationship between CEO/chairman’s political connections and the probability of IPO approval of entrepreneurial firms. We provide evidence that connected independent directors and PE/VC investors bring important networks which facilitate firms’ access to the IPO market, albeit the former complements and the latter substitutes the CEO/chairman’s connections. We argue that in emerging markets where government intervention is still prevalent, entrepreneurial firms usually build political connections in order to facilitate their access to both the private financing market and the public equity market.