Qigui Liu

Does political capital create value in the IPO market? Evidence from China

This study examines the value of political capital in the Chinese IPO market. We find a positive relationship between a politically connected executive and the probability of IPO approval of entrepreneurial firms. We further identify that shareholders value those connections and give a market premium to connected firms after the firms go public. We provide evidence that other types of political capital gained through external sources, such as politically connected sponsors and PE investors, also bring benefits to the firms in their IPO approval, and these connections substitute for the effect of the executives political connections on IPO approval. We argue that in emerging markets where government intervention is still prevalent, political capital does create value and entrepreneurial firms usually build political capital to facilitate their access to the IPO market, although other types of political capital do not bring further benefits into the post-IPO market.

The effect of ownership structure on leverage decision: new evidence from Chinese listed firms

This paper examines the effect of state control and ownership structure on the leverage decision of firms listed in the Chinese stock market. Our results show that state-owned enterprises (SOEs) have higher leverage ratios than non-SOEs, and SOEs in regions with a poorer institutional environment have higher leverage ratios than SOEs in better regions. We also show that the largest shareholding (the percentage of shares held by the largest shareholder) in the SOEs has a negative relationship with the leverage ratio, while the largest shareholding in non-SOEs has a non-linear relationship with the short-term and long-term debt ratios. Finally, this study also shows that the share split reform and the improvement of institutional environment both weaken the negative relationship and strengthen the positive relationship between largest shareholding and leverage of SOEs and non-SOEs to some extent. This paper documents how the financing behaviour of SOEs is more influenced by government intervention, while the financing behaviour of non-SOEs is more market oriented.

Does Control-Ownership Divergence Impair Market Liquidity in an Emerging Market? Evidence from China

This paper examines how institutional characteristics of emerging economies influence the effect of control-ownership divergence on market liquidity. We find that the divergence is negatively associated with liquidity and that this negative relationship is more pronounced in firms with more severe agency problems and information asymmetry. We argue that in an emerging market, the negative effect of the divergence on liquidity is worsened by state ownership and poorer shareholder protection, both of which result in more severe agency conflicts; we also find, however, that this effect is alleviated by the NTS reform, which aligns the interest of different shareholders.

Leverage Ratio and Determinants of Capital Structure in SMEs: Evidence from China

It is argued that Small and Medium-Sized Enterprises (SMEs), particularly those non-State Owned enterprises, in China face difficulty in obtaining bank loans, due to “size discrimination” and “ownership discrimination”. In this paper, we utilise the most recent financial panel data of Chinese listed firms, and conduct an empirical research on determinants of capital structure of Chinese SMEs, by comparing with the results from LSEs in Chinese capital market. The results suggest that there are great difference between determinants of capital structure of SMEs and LSEs. Compared to LSEs, “size discrimination”, pecking order theory, tax shield effect and the negative relationship between state subsidy and capital structure were found only in the sample of Small-sized firms. In addition, another interesting result which is contrary to general expectation is also found, The result shows that medium and large-sized non-State Owned firms tend to have more bank loans than their State Owned counterparts while no such relation exists in small sized firms. We argue that medium and large-sized State Owned firms in China tend to have a powerful parent company, which can prop up the listed firms. On the other hand, non State-Owned medium and large-sized firms are generally not affiliated with a powerful parent company, so they tend to rely upon external finance, especially bank loans.

Call Auction Transparency and Market Liquidity: Evidence from China

This paper uses the natural experiment offered by the Shanghai Stock Exchange to investigate the impact of opening call auction transparency on market liquidity. We find that the dissemination of indicative trade information during the pre-open call auction session leads to an overall improvement in stock liquidity in the continuous trading session. Bid-ask spreads narrow in the first trading hour because adverse selection risk fell significantly and there is less price volatility in the continuous market. This effect is greater for actively traded securities than illiquid securities. Our findings are robust for different lengths of sample period, different lengths of trading hours after market open, and stocks that had (and had not) reformed the share split structure during our research period.

How do political connections cause SOEs and non-SOEs to make different M&A decisions/performance? Evidence from China

This study examines the impact that political connections have on Mergers and Acquisitions (MA instead, political connections in non-SOEs help bidders to integrate vertically and obtain external financing support.

Managerial Social Networks Versus Political Connections: Evidence from Firms’ Access to Informal Financing Resources

This study investigates how managerial social networks, through executive membership of an industry association, play a role in helping firms obtain trade credit, while political connections do not. We document that firms whose managers have such social networks receive more trade credit, especially in firms which either have a low bank loan ratio or have limited access to formal financing. The business environment, for example, high regional competition and product market competition, also strengthens the positive relationship between managers’ social networks and firms’ access to trade credit. We further provide evidence that managers’ social networks, especially those established by the founders have a positive effect on firm value and they play a more important role during the crisis period from 2008 to 2009. Our results are robust to a series of robustness and endogeneity tests. Overall, we argue that managerial social networks other than political connections help firms, especially those with limited access to formal financing, to overcome institutional discrimination and obtain informal financing resources, and thus create value to shareholders.

Political Connections and M&A Decisions: A Natural Experiment from the Anti-Corruption Cases in China

Using the recent anti-corruption cases in China as a natural experiment, this study documents that connections with the government officials through bribing and personal connecting enable Chinese non-SOEs to increase their M&A activities, enjoy a better post-M&A performance, pay less M&A premium and conduct more local M&As before the connected government official is removed in an anti-corruption case. However, after the event, their M&A activities decrease significantly, post-M&A performance worsen, pay more M&A premium and they are less likely to conduct local M&As. Our findings are robust to a few robustness tests. Overall, our study provides direct evidence to the question: why firms seek to establish connections with government. We also reveal the benefit and cost for firms being politically connected.

Does the Economic Stimulus Package Stimulate Firm Investment and Improve Investment Efficiency? Evidence from China

The Economic Stimulus Packages which was introduced in response to the recent global financial crisis has been debated vigorously for its implications for economic efficiency. Using Chinese firms in the period 2003-2013 from the supply side perspective, we show that with the implementation of an economic stimulus package in China, state-owned enterprises (SOEs) receive more bank loans and invest more than non-SOEs. We further find that the economic stimulus package distorts bank lending decisions and reduces firm investment efficiency of SOEs, non-SOEs from favoured industries and regions, and non-SOEs with political connections. Our findings are robust to event study analysis, controlling for bank-level unobserved heterogeneities, and other robustness tests. Overall, our findings support the view that the stimulus package and the associated increase of bank loan supply in China results in a resource misallocation to SOEs, so that resources are invested inefficiently, that is, the stimulus package stimulated investment by SOEs and crowded out investment by privately owned sectors.

Disproportional Ownership Structure and Stock Market Liquidity in China

This paper examines the effect that disproportional ownership has on stock market liquidity using a sample of Chinese listed firms. We find that the controlling shareholders’ excess control rights are negatively associated with market liquidity. We also provide evidence to show that the negative relationship between disproportional ownership and liquidity is stronger when the firms’ ultimate owner is the state or where legal protection for minority shareholders is weak; both of which result in a more severe agency problem. In addition, we find that as more non-tradable shares by controlling shareholders became tradable, the negative effect of disproportional ownership on liquidity became less. This relationship between disproportional ownership and liquidity remains even when the trading activities of controlling shareholders are controlled. We argue that in transition economies such as China, controlling shareholders usually have a strong incentive to disclose poor information in order to pursue their private benefit, which reduces market liquidity, while state ownership and weak shareholder protection makes this situation worse.