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

• Cao, Jerry X. 
• Ding, Yuan 
• Zhang, Hua 

Indexed by

SSCI Scopus FT ABDC-A

Abstract

Social　capital　can　serve　as　informal　governance　in　weak　investor-protection　regimes.　Using　hand-collected　data　on　entrepreneurs’　political　connections　and　firm　ownership,　we　construct　several　original　measures　of　social　capital　and　examine　their　effect　on　the　performance　of　entrepreneurial　firms　in　China　after　their　initial　public　offerings.　Political　connections　or　a　high　percentage　of　external　investors　tend　to　enhance　firm　performance,　but　intragroup　related-party　transactions　commonly　lead　to　performance　decline.　These　forms　of　social　capital　have　a　strong　influence　on　the　performance　of　Chinese　firms,　whereas　formal　governance　variables　such　as　board　size　or　board　independence　have　little　effect.　Although　social　capital　may　serve　as　an　informal　governance　mechanism　and　effectively　substitute　for　formal　governance　mechanisms　in　an　emerging　market,　this　role　of　social　capital　raises　several　ethical　concerns,　notably　the　development　of　rent-seeking　and　crony　capitalism.

Keyword

• Agency theory
• China
• Entrepreneur
• Political connection
• Post-IPO performance
• Social capital

Author Community

[Cao, Jerry X.] Singapore Management Univ, Singapore 178902, Singapore

[Ding, Yuan ; Zhang, Hua] China Europe Int Business Sch, Shanghai, Peoples R China

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