The Research On How Political Relations Influence China’s Enterprises’ IPO Financing

In the past twenty years, the capital market in our country was developed rapidly even though the related system is not perfect. Until the end of2012, there have been already had2492companies realized IPO financing. However, there has an apparently difference between the financing income and financing cost in different companies. What is more, the political relations are regarded as an informal system, which has a significant impact on IPO financing. Due to the reason that the capital market in our country is imperfect, the business operation is often restricted by the environment of the relevant market. Hence, enterprises always try to establish the political relations in order to be more competitive.In nature, there has no evident difference between the motion of the enterprise to build the political relations and the business operation, since both of them have the same goal that is to realize the profit maximization of the company. No matter the social capital theory or the resource dependence theory, which all emphasize the political relations can be regarded as a senior social resources that not only can help the company to gain more resources, but also optimize allocation of resources of the company. In our country, the government intervention in the economy and its control of the scarce resources are quite obvious. The impact of the government to the company cannot be ignored. Therefore, for the purpose of minimizing the negative effects which are bought by the government intervention, the company will increase the investment in building or maintaining the political relations for the support and protection which cannot be get from the law and formal regulation. In other words, the reason why companies seek the political relations is to reduce the operational cost and get more extensive government support.The political relations can be regarded as a legal political resource, which can affect the company in the following ways:first, it can raise the business credit. Second, it can interfere with the bank lending behavior. Third, it can gain more government support. In order to push the development of local economy, the local government always gives local enterprise more generous preferential policy. Among those effects, the company’s political relations will have direct promotion for the business activities. Due to the fact that to help the enterprise to realize IPO is a common vision for both the enterprise itself and the government, so that the company can depend on the political relations and the support of the government to directly or indirectly change the operating conditions. This effect can be reflected by both the company’s operating performance and its growth potential. Under the comprehensive protection of the political resources, the operating conditions of the company can have obvious improvement, which is a solid foundation for the company’s IPO path.With the progress of the market economic reforms, the company has large financing requirements during the development. The IPO can be seemed as an important channel for the company to financing. Furthermore, it is also gradually becoming the strategic choice of more and more enterprises. Because in our country the implement of the IPO is by the examination and approval system, during this time, the company may have the effects not only from the formal mechanism, but also from the informal one. And the company’s political relations is one of those effects. In this view, the IPO financing income and financing cost are treated as the research object in the dissertation. Moreover, the fully diluted earnings, share of the financial scale, explicit cost and implicit cost, which all after the actual outstanding, are be chosen as four indicators to measure the IPO financing. Also, we choose three indictors to measure the political relations, which are the ratio of the board directors in the political relations, high ratio board directors in the political relations and the political relations strength index. On the basis of the description and the measurement of the political relations and IPO financing respectively, using descriptive statistical analysis、Pearson correlation analysis and liner regression analysis to conduct the empirical analysis for the population sample and the group observation that under the difference of both the state-controlled and the economic level.From the empirical research in the essay, there are several findings can be found which are listed as follows:first of all, under the same condition, the more strength the political relations of the company, the higher financing income the company will get, and the impact of the political relations to the IPO financial scale is smaller than the IPO financing price. Secondly, under the same condition, the more strength the political relations of the company, the lower the IPO financing cost, and the impact of the political relations to the IPO explicit financing cost is larger than the implicit cost. Thirdly, under the same condition, the impact of the political relations to the IPO financing income and financing cost of the non-state-controlled enterprise is larger than the state-controlled enterprise. Fourth, under the same condition, the impact of the political relations to the IPO financing income and financing cost of the company in the economy less developed area is larger than the company where the level of economy is developed. In general, the political relations can facilitate the company’s IPO financing. The effects can be realized in the IPO financing income, and the impact on the financing cost is larger than the financing scale. At the same time, it can also be realized in the IPO financing cost, and the impact on the explicit cost is larger than the implicit one.In sum, the suggestions provided in the essay are all from the viewpoint of the supervisor, the enterprise operator and investor. Among those, the supervisor should gradually improve the examination and approval system and pricing system of the IPO, reducing the government intervention, taking full advantage of market mechanism. Also at the same time, the supervisor should set out relative criterion and system from the aspects, such as restrict the range of re-employment, the employment related activities and the employment registration, to avoid the appearance of the corrupt practices. For the enterprise operator, it is not enough to pursue only the political relations. Although, the political relations can bring the interest to the company, it also should take some costs. Therefore, the operators should pay more attention to matching and mining between the political resources and the direction of company’s development in the future. For the investors, when choosing the company, it is more important to focus on its senior political relations, and analysis whether the political resources of that company is match with its own future development strategy. The investors can also observe whether the company takes fully advantage of its political resources to improve the operating performance.