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Government intervention in the capital allocation process: Excess employment as an IPO selection rule in China
Stockholm University, Faculty of Social Sciences, The Swedish Institute for Social Research (SOFI). Research Institute for Industrial Economics, Sweden.
Number of Authors: 4
2017 (English)In: China economic review, ISSN 1043-951X, E-ISSN 1873-7781, Vol. 44, 271-281 p.Article in journal (Refereed) Published
Abstract [en]

We study the role of excessive employment as a selection criterion for initial public offerings (IPOs) in China. Using a large dataset of firms that are eligible for a public offering, we find that firms' that have more excess employment that is, firms that hire too many people are more likely to be selected for an IPO. This correlation is stronger for the private sector than for the state sector, suggesting that stock market capital is used to direct capital flows to private firms that comply with politicians' preferred labor practices. A third set of results corroborates the inefficiency of this selection rule by showing that firms with more excess labor underperform after the IPO. We conclude that a political system known for its interventionistic government policies uses its influence over the stock market to signal preferred employment practices.

Place, publisher, year, edition, pages
2017. Vol. 44, 271-281 p.
Keyword [en]
Local government, Initial public offering, Labor market, Excess labor, Capital allocation, China
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-145353DOI: 10.1016/j.chieco.2017.05.002ISI: 000404072500018OAI: oai:DiVA.org:su-145353DiVA: diva2:1128660
Available from: 2017-07-27 Created: 2017-07-27 Last updated: 2017-07-27Bibliographically approved

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Rickne, Johanna
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Citation style
  • apa
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Language
  • de-DE
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  • nn-NB
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  • Other locale
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Output format
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  • asciidoc
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