Accounting Seminar（2017-09）

Topic:How Public Markets Enforce Firm Standardization: Evidence from Chinese IPOs

Speaker:Ran Zhang, Guanghua School of Management, Peking University

Time:Friday, May 5th, 10:00-11:30 a.m

Place:Room 217, Guanghua Building 2

Abstract:

Beyond financing firm operations, public markets provide liquidity for the entrepreneur and early investors, rewarding them for standardizing (or ”professionalizing”) the firm. We explore how access to public markets affects firm standardization and venture capital (VC) investment. We exploit unique features of China’s approval-based listing process and occasional IPO suspensions. The surprise suspensions of indeterminate length provide plausibly exogenous variation in listing delay and thus in firm access to public markets. Among firms approved to IPO at similar times, we find that suspension-induced delay has strong negative effects on patent applications. Firms funded by domestic VCs are more affected than those funded by foreign VCs. Delay also leads to short term increases in CEO pay. The effects do not seem to reflect a capital supply shock, as delay does not affect contemporaneous investment or leverage. We also find evidence that the suspensions have had a chilling effect of on aggregate VC investment in China. Overall, our findings are consistent with Rajan (2012)’s argument that high-growth entrepreneurship needs public markets.

Introduction:

Ran Zhang is an Associate Professor of Accounting at Guanghua School of Management, Peking University. She got her Ph.D. from the University of Colorado at Boulder.

Your participation is warmly welcomed!