The Effect Of Political Connections On The IPO Success Rate And Corporate Performance

China's current securities issuance system is an approval system.The CSRC not only audits the comprehensiveness and authenticity of the issuer's application documents,but also conducts substantial examination of the issuer's financial status,business level,and development prospects,etc.to make value judgments and decide whether the application can be passed or not,therefore,the decision of whether the company can be listed is still controlled by the government.Due to the large number of stock issuance audits and the long process,the audit work is not transparent,and the supervision mechanism is not perfect.The members of the IEC have certain discretionary powers,and there are many loopholes in rent seeking during the review process.Establishing ties with the government can help companies to gain the advantage of convenient resources.Then,in the review of corporate stock issuance,will political associations be more conducive to the successful adoption of the company,and will it affect the operating performance of the company after successful listing?This is the main issue of this article.GEM provides financing services for innovative and growth companies.However,in recent years,the performance of companies has changed since the IPO.Therefore,this article takes a sample of companies that have been audited by all IPOs of the GEM as of December 31,2016,to study the influence of political associations on the adoption rate of IPOs by companies,and the relevance of pre-listing political associations and post-listing business performance to examine the efficiency of IPO resource allocation on GEM and explore the deficiencies of the GEM issuance review sy stem.China is not only a government-based society,but also a society that emphasizes human relations.In addition to entrepreneurs who have political connections,political resources also show implicit political connections.Therefore,in Chinese society,it is also meaningful to conduct in-depth research on this hidden political resource.Therefore,in addition to the variables commonly used in academia to measure corporate political connections,this paper also constructs the Political Resources Index(PSI),which measures the political resources of the local cities in China.The results of the study indicate that the direct political connections of the companies to be listed on the GEM(the background of the political connections of the company's directors,executives and supervisors)and the indirect and implicit political connections of the companies(the Political Resource Index of the city where the company is located)can significantly increase the IPO success rate.Further,there is a significant negative correlation between the company's post-listing performance and its political connection(direct and indirect)and its strength,which indicates that the IPO resources allocation on the GEM board is unreasonable,and the GEM issuance review system is flawed.