The long-awaited Facebook initial public offering (IPO) in May 2012 was a landmark moment for internet companies, with a peak market capitalization of $104bn. The Facebook IPO was also something of a landmark for fawning press coverage of a company, as media outlets fell over themselves to gush effusively about all the new millionaires and billionaires being minted by the second, with only a few voices pointing out that Facebook really, really wasn’t worth that much. Finance Asia reports that Chinese companies are able to get similarly positive coverage for their IPOs in a more traditional way, by bribing journalists.
[The] practice of paying off the local press has become rampant in recent years, fuelled by the fierce competition for funding in China, where listings are still seen as a source of scarce and much-desired capital. Most of the illicit payments are made under the guise of a legitimate transaction.
“Placing a commercial advertisement is the preferred channel,” said one securities industry insider, who added that publishers are often as much to blame as issuers. “Sometimes the media extract an advertising contribution from companies preparing for an IPO by threatening to publish negative reports.”
Companies can pay anything from hundreds of thousands to tens of millions of renminbi, depending on the extent of the company’s influence and its media relationships. This can greatly increase the cost of IPOs, particularly for smaller companies, and also distorts the information available to retail investors, who make up most of the participants in China’s stock markets.