The Acquisition of Listing Qualification under Regulation and the Development of Local Industries

Abstract

Under the current fiscal decentralization system in China, local governments undertake the task of developing local economy, so they have the motivation to strive for various factors to promote regional economic development. A tightly regulated listing qualification could also be a resource to boost regional economies. This is also the implicit premise in the existing studies that local governments help enterprises in their jurisdictions to pursue listing qualification. However, there is no clear answer as to whether obtaining listing qualification can promote regional economic development. Theoretically, obtaining listing qualification may bring a spillover effect to regional industries. First of all, to go public can bring a demonstration effect, prompting local enterprises in the same industry to seek listing qualification in order to cope with competition. In the context of regulation, seeking listing qualification also means improving their business performance to pass regulatory selection. Second, after the access to the capital market, enterprises can obtain equity financing to promote their possible industrial investment and technological upgrading. This may horizontally lead to the proliferation of technology and personnel, so that local industry enterprises benefit directly. Third, the investment and technology upgrading after listing will vertically lead to the technical progress of the industrial chain, thus making local enterprises in the same industry benefit from it. This means that obtaining listing qualification may bring a positive spillover effect to the local industry. Using the provincial industrial development data from 2005 to 2015, we empirically test the above theoretical prediction. We find that the acquisition of listing qualification has a spillover effect, and the newly listed companies in a local industry can significantly increase the economic output efficiency of other companies in the same industry. The demonstration effect, horizontal connection and vertical connection may be the main mechanism of the spillover effect. Considering the regulatory background of listing qualification acquisition, we further investigate the influence of specific regulatory tendencies on the above spillover effect. The results show that the spillover effect is facilitated by preferential selection and poverty alleviation. However, the difference of enterprise ownership in regulation has no significant influence on the spillover effect. This result shows that the specific tendency of listing qualification control may have both rationality and inefficiency. The findings of this paper help to explain local governments’ concerns about listing qualification and deepen the understanding of the important role of endogenous capital factors. And the findings about control tendency may provide a specific perspective for the further reform of the listing system. Due to the limited availability of data, the evidence provided by the mechanism test part of this paper is indirect, which is also the possible direction of further research in the future.