Social Capital, Informal Governance, and Post-IPO Firm Performance: A Study of Chinese Entrepreneurial Firms

• Main Authors: CAO, Jerry X., DING, Yuan, ZHANG, Hua
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2013
• Subjects: Post-IPO performance; Social capital; Agency theory; Entrepreneur; Political connection; China; Asian Studies; Business; Corporate Finance; Entrepreneurial and Small Business Operations
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/4347; https://ink.library.smu.edu.sg/context/lkcsb_research/article/5346/viewcontent/SocialCapitalPost_IPOFirmPerformance_AOMProc_2013.pdf
• Institution: Singapore Management University

This paper explores the links between entrepreneurs' social capital and post-IPO firm performance in China's unique capital market and regulatory setting. Using hand-collected data on entrepreneurs' political connections and firm financial information, we construct original measures for various types of social capital and examine their roles in determining the accounting and financial performance of entrepreneurial firms after an IPO. On one hand, firm accounting performance is enhanced by entrepreneurs' bridging social capital, such as political connections or a willingness to share power with external investors. On the other hand, bonding social capital such as intra-group related party transactions causes performance to decline. A similar effect exists on financial performance, such as a 3-year post-IPO abnormal stock return. Board size or independence, however, does not explain firm performance. The results suggest that entrepreneurs' social capital serves a positive governance role in the capital market.