Introduction

This special section,edited by Yin-Wong Cheung and Iikka Korhonen,assesses the long and complex process of the renminbi(RMB)internationalisation from several different angles.The overall progress has been quite remarkable in some areas,but clearly much more cautious in other areas.Chinese authorities’caution in,for example,opening up capital accounts in a significant way can be explained by several cautionary examples of premature capital account liberalisation and subsequent economic dislocations.As long as the movement of capital across the Chinese borders remains controlled in the current fashion,the international use of the RMB will also remain limited.On the other hand,the steady growth of China’s economy will boost demands for Chinese assets,including assets denominated in the RMB.This process will,in its part,help increase the international use of the RMB.

Introduction

While a truism,it bears repeating that China’s emergence as the world’s second largest economy(with the gross domestic product measured at market exchange rates)during the past four decades is one of the greatest economic success stories in the modern economic history.Growth of China’s economy has helped lift literally hundreds of millions of people out of poverty.Also,in the process China has become the world’s largest exporter,signifying China’s growing integration with the rest of the global economy.

Introduction

The goal of this special issue on Politics and Finance is to fill in the gap between theoretical and empirical research on politics and finance from perspectives of a group of financial economists,of significant academic reputation on the subject matter,from around the world.After over a year and a half of reviews and revisions,a selection of the papers that survived the process is here published in this special issue of Economic and Political Studies.

Trust,politics and post-IPO performance:SOEs vs.the private sector

This paper empirically investigates the role of social trust in the long-term performance of the initial public offerings(IPOs)in China,controlling for the formal institutional environment.We find that privately owned or smaller IPO firms experience signifi-cantly better post-IPO performance when they are incorporated in regions with more social trust.The state-owned and bigger IPO firms,on the other hand,experience better long-term post-IPO performance when they are incorporated in regions with stronger formal institutions(e.g.court enforcement and contract holding).Political pluralism turns out to benefit all IPOs in the long term.In addition,our evidence shows that stronger social trust substitutes for the quality of court enforcement but complements the role of contract holding.These results are robust after controlling for alternative definitions of ownership,outliers,non-linear effects of institutions,and the potential endogeneity of institutions in the model.