Author:
Brockman Paul,Firth Michael,He Xianjie,Mao Xinyang,Rui Oliver
Abstract
We examine the role of relationship-based resource allocations during the approval process of seasoned equity offerings (SEOs) in the Chinese capital market. Our results show that guanxi-based relationships significantly increase the likelihood of SEO approvals, particularly for suspect SEO applicants with abnormal levels of earnings management (EM), related-party transactions (RPTs), and intercompany loans. More importantly, we find that guanxi-influenced SEO firms have significantly poorer performance in the post-SEO period, which indicates that it results in inefficient resource allocations. Overall, our evidence suggests that relationship-based resource allocations lead to negative spillover effects that impose social welfare losses.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics,Finance,Accounting
Cited by
28 articles.
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