Industrial Policy via the IPO Market

This paper studies how China uses access to public equity markets as an instrument of industrial policy. We find that policy-favored status, rather than industry Tobin's Q, predicts IPO activity, in contrast to the United States. The effect is economically large: our estimates imply that favored industries had 287% more IPOs and 148% higher IPO proceeds than non-favored industries over 2002 to 2022. We develop a framework to interpret these findings: the government shapes the number of listing opportunities available across industries, while market forces determine which firms obtain these opportunities based on firm fundamentals. Consistent with our framework, policy favor also predicts a valuation premium which persists after listing.