Political embeddedness as a double-edged sword: Firms in China's stock market.

摘要

This study examines the development of China's stock market and Chinese firms' strategies in response to this emerging market institution. In particular, it looks into the issues of shareholding restructuring, IPO process, post-listing performance, and corporate governance of listed firms.; I first examine the shareholding restructuring reform of Chinese firms in 1990s. Data analysis based on a survey data of 451 firms from five Chinese cities shows that financial indictors did not have effects on whether or not a firm would restructure into a shareholding company. I argue that this process should be better understood as a widespread, sweeping political movement in which various levels of government bodies indiscriminately carry out in firms under their jurisdictions. I then examine the processes and mechanisms through which firms become listed in China's stock market. Using a national sample of over 2,000 firms, my analysis shows whether or not an SOE is listed largely depends on its position in China's political structure relative to the decision centers that take charge of allocating listings. Political connections were an asset that helped candidate firms to achieve this goal. I further examine the performance of listed firms in the post-listing era. By showing that listed firms' performance deteriorated over time on average, I argue that the main reason is that the listed firms' dominant shareholders, often a parent group, are more interested in funneling funds from the listed firms than in improving their bottom line. A panel data analysis of post-listing performance of listed firms shows that listed firms with a more balanced share structure among top shareholders tended to have better performance as measured by ROA. Firms with a higher level of share concentration also had better post-listing performance. The findings suggest that balanced but concentrated shareholding by top shareholders provides strong incentives for shareholders to take their monitoring role seriously while also creating checks and balances among top shareholders. I propose the "political embeddedness as a double-edged sword" thesis to synthesize the positive and negative effects of political connections.