The Motivation Of Private Enterprises’ Political Connection

Political connection is a worldwide phenomenon, very common in transitioneconomies and developing countries. Under a transforming economic environment, inChina’s cultural and institutional context, it is more important and prevalent for privateenterprises to establish connection with government officials or political figures. Therefore,the political connection has become an important aspect of the strategic decision-makingand operational behavior of private enterprises, and thus become the key factor for thegrowing private enterprise to gain competitive advantages. Based on previous study, it isfound that enterprises can benefit a lot from political connection. However this connectionwill also make private enterprises to afford higher cost, and which impacts on thecompany’s performance and value donot have explicit effect. Why, then, so many privatecompanies still try to establish Political connection in real life? What are their motivationsand antecedents?Under Chinese transition economy background, whether enterprises compete bypolitical connection or market advantage, it depends on enterprises’ strategy orientationand senior managements’ value for enterprises. According to strategic management theory,enterprises’ character is one of the main conponents of enterprises’ strategy orientation andthe basis of strategy formulation which includes market orientation、ability of integratingexternal resources and financial structure. Zhang and Li (2007) indicat that topmanagement also have siginificant influence on enterprises’ strategy, including politicalconnection. Because Chinese mechanism is considering low and immature, as a resultsenior management behavior plays an important role in strategy making. Thus the paper isgoing to study the private enterprses’ political connection from organizationalcharacteristic and senior management behavior perspectives on account of Chineseinstitutional background.and provide relevant recommendations for both Chinesegovernment and enterprises. Based on previous studies, we find out that lots of organizational characters andsenior management behavior could influence the motivation of enterpriteses’ politicialconnection, such as development of enterpriteses、 profitabillity、debt structure、degree ofmarketization and managements’ association. Therefore these factos would be studied ascontrol variables. The paper mainly focuses on the influence of lifecycle、 marketorientation、enterpries’ sclae、senior managements’ overconfidence and self-interest. Byusing the Probit model and OlS model, we select data from2007-2012of374private listedcompanies and adopted an empirical analysis of the impact of the organizationalcharacteristics of private enterprises on corporate political connection. The empiricalanalysis is divided into three parts, full sample regression, different market levels groupedregression and the listing type sample packet regression. After the analysis, the authormakes the following conclusion. First, from the perspective of the whole sample, wesuggest that when the enterprise is growing or declining, its pursuit of political connectionis relatively higher. And if the company is matured in its development, its politicalconnection is relatively lower. Second, marketing level is in negative correlation withpolitical connection. If the company’s market-developing level is high, its intention tobuild political connection is usually weaker. It may also seek a lower level of politicalconnection. Third, companies of different listing types differ greatly in their motives toestablish political connection. Market-developing level influences greatly the motives ofdirectly listed company, and is in negative correlation with it. On the contrary, its influenceto the indirectly listed company is not prominent. The life span of a company is not relatedto directly listed company or indirectly listed company. In places where the governmentintervention is little, companies’ intention to established political connection is relatedclosely to their market-developing levels. Also, if a company’s market-developing level ishigh, it will seek to build a political connection in a lower level. When a company isgrowing or declining, the political connection level it seeks will be higher.In the paper, by constructing cross-sectional model of the behavioral characteristics ofsenior management and corporate organizational characteristics, it has been tested theeffect of enterprise organization characteristics (enterprise life cycle, market-orientation,enterprise scale) in the associated behavioral characteristics of the senior management ofprivate enterprises political will and political strength of the association. The study found:in the region with low government intervention, corporation’s life circle, in aspect of self-interested behavior has no regulatory impact on the effect of senior management’sself-interested behaviors on corporate political connection strength while has positiveregulatory impact on the effect of senior management’s over-confident behaviors oncorporate political connection strength. No matter an area has high or low governmentintervention; the enterprise market-developing level has no regulation on the effect ofsenior management characteristics on corporate political connection strength. In lowgovernment intervention areas, firm size has significant positive moderating effect on thepolitical connection of private enterprises, while it has no significant effect on theregulation of self-interested behavior of senior management.The research broadens and deepens the study of the domestic and foreign scholars onthe theory and practice of political connection and provides a useful reference to associatedstrategic choices for private enterprises in the political decision-making. This paper hasthree innovations: First, based on the perspective of organizational and behavioralcharacteristics of senior management to build a theoretical model of the influencing factorsthe strategic choices of political connection of private enterprises, to explore the resourcesneeded in the enterprise in the different life-cycle stages characteristics and capacityrequirements, verify the type of enterprises in different development stages to seek politicalties differences. Second, investigate the nonlinear relationship between firm size andpolitical strength of the association; stand the impact of firm size on the political affiliationin whatever circumstances and conditions with recurrent structural changes. Third, it is theexploratory study of the characteristics about the regulating effect of the degree anddirection of the political connection to the behavioral characteristics of the seniormanagement in private enterprises and business organization.