Listing, Economic Policy Uncertainty, and Risk‐Taking Behavior in Private‐Sector Firms in China: Strategic Growth Versus Political Connections

ABSTRACT Previous studies have found that policy uncertainty encourages firms to adopt risk‐taking behavior such as investment in research and development (R&D). Initial public offerings (IPOs) change this relationship. Utilizing data from both listed and never‐listed firms, we establish the causal impact of listing on the relationship between economic policy uncertainty (EPU) and R&D investment by private‐sector firms in China. Our results are as follows: IPOs directly cause private‐sector firms to adopt a more active attitude to R&D investment under high EPU, although IPOs indirectly discourage such behavior under high EPU because of the greater political connections such firms obtain as a result of their IPOs. Our results suggest that policymakers should avoid market intervention and prevent listed firms from developing strong political connections.