Distributive Politics in Centralized Bureaucracy: The case of Chinese IPO System

• In Event: Poster Session - Law and Courts & Federalism and Intergovernmental Relations
  In Poster Session: Poster Session: Federalism and Intergovernmental Relations

Abstract

Recent research shows that political centralization can reduce elite capture and improve local governance. Despite these benefits, we argue that an independent-minded, centralized bureaucracy cannot eliminate distributive politics based on political patronage networks. We study a highly-centralized approval-based system of initial public offerings (IPOs) in the Chinese stock market. Such a system is designed to avoid the influence of private, local interests and select well-performing firms into stock markets based solely on efficiency criteria. However, we find that seemingly powerless provincial politicians can still strongly influence the allocation of IPO approvals in favor of their loyal, city-level subordinates by cooperating strategically with central bureaucrats. With both firm-level cross-sectional analysis and city-level analysis based on a difference-in-differences design, we demonstrate that factional political ties between city and provincial leaders increase the chances of IPO approvals and reduces the length of IPO review.

Authors

• Yishuang Li, New York University

• Zhenhuan Lei, New York University