Study On Technological Innovation Of China’s Private Enterprises From The Perspective Of Political Connection

Since Schumpeter found large enterprises are more likely to carry out technological innovation in1942, domestic and foreign scholars have conducted a lot of research on the influence factors of technological innovation. Those researches can be divided into two aspects:micro factors from the enterprise and macro factors from the outside. The premise of these studies is that enterprises are in a market environment, and for China’s private enterprises during the period of transition from a planned economy to a market economy, research on the driving factors of the technological innovation from other perspective is necessary. Political connection refers to the informal and special relationship between enterprises and government or the individual who has political power. This special relationship between the enterprises and the governments is a common phenomenon all over the world. Under the background of transiting to a market economy in China, private entrepreneurs are keen to political connection because of the intervention from local governments and the ownership discrimination. Therefore, it’s meaningful both in theoretical and practical to study the influence factors of technological innovation of China’s private enterprises during the period of transition.After reviewing the domestic and foreign relevant research, this paper has combined the theory of new institutional economics, rent-seeking theory, corporate governance theory and the technological innovation theory, and made use of the research method of theoretical analysis and empirical analysis. Based on the private enterprises listed on GEM (Growth Enterprise Market) board, selecting relevant data from2009to2011, this paper has carried out a comprehensive study on how political connection has influenced technological innovation of private enterprises. First of all, base on the institutional environment of China’s private enterprises during the period of transition, this paper has introduced the origin and evolution of political connection, and analyzed the impact on technological innovation of political connection with two case studies. Next, this paper has studied how political connection influenced technological innovation from the perspective of government. And then, this paper has studied how political connection influenced technological innovation from the perspective of enterprise. Then, the corresponding empirical test has been made for the hypothesis proposed by former theoretical research. Finally, based on theoretical and empirical research, conclusion and policy recommendation has been made.This paper has presented some innovations in the following aspects:Firstly, the idea of studying the technological innovation of enterprises from the perspective of political connection is novel. Secondly, it is innovative to explain the political connection with the theory of new institutional economics. Thirdly, it is novel to study the impact on innovation resources of political connection from the perspective of preferential policies and political burden from rent-seeking. Fourthly, it is novel to study the impact on innovation institution of political connection from the perspective of corporate governance. In addition, it also has filled the blank of research to a certain extent by using the data of enterprises listed on GEM board as a sample of empirical studies.This paper has drawn following conclusions through the research:Firstly, political connection of private enterprises become more common in the region where institutional environment is worse or the process of marketization is slower. Further research shows, government intervention, enterprise’s tax burden and the protection of legitimate rights are key factors of political connection for the private enterprises. Secondly, generally speaking, the level of technological innovation is lower in enterprises with political connection which means political connection has hindered the activities of technological innovation for the private enterprises. Thirdly, political connection has brought private enterprises more loans from banks, but these loans have reduced the input of technological innovation. Political connection can help enterprises get more subsidies, so as to promote the technological innovation of enterprises. Private entrepreneurs have to employ redundancy employees and invest in fixed assets excessively because of the policy burden caused by political connection which has reduced the resources of technological innovation. Fourthly, ownership concentration gives big shareholders more motivation to invest in technological innovation and this motivation will be weakened in the enterprises with political connection. Two duties in one bring CEO more power to promote the technological innovation and also this power will be weakened in the enterprises with political connection. In private enterprises with political connection, the ratio of board members who has received high level education is lower, and the possibility of employing a CEO with technical background is lower, which will have a negative impact on technological innovation.This paper has proposed following policy recommendations:Firstly, to accelerate the construction of marketization and to reduce the direct government intervention in the economy, which make market play a basic role in the allocation of resources. Secondly, for government, to create a fair competition environment in the field of institution design and to give all enterprises equal treatment which will constraint the rent-seeking incentives by political connection for private enterprises. For enterprises, to have a clear understanding of political connection and play more entrepreneurial spirit which means spending more energy on the production activities. Thirdly, In order to promote the technological innovation of enterprises and enhance the competitiveness of the enterprises, the government should make use of fiscal, taxation and other polices to encourage and guide enterprises, while reducing their burden. Enterprises should strengthen the institution construction, and constantly improve the corporate governance structure.