| The magnificent reform and opening up has been proceeding for more than thirty years, now china is the most vigorous economy entity in the world. As for economic field, the reform of state-owned enterprises (SOEs) is generally accepted as center link of the reform in economy system, we have found a mixed reform method basing on gradual reform, supply with radical reform if needed (Yang Dan,1999). The proceeding of SOEs reform has played a key role in promoting economy system transforming from planning system into socialism market economy. With the advancement of marketing process, SOEs have solved many problems in the central planning economy era, showing their great potential. But we have to admit that SOEs still facing many chanllenges while gained great achievement.In light of governments didn’t change their way to allocate social resources fundamentally during the transformation period(Zhou,2007), they still played a key role in the economy life, all companies including SOEs will affected by government inevitably. With strategies to solve specific problems maybe different, but to solve the problems of SOEs we must take their relation with governments into consideration.The government intervention behaviors have various ways to affect SOEs, in this paper we will focus on the personnel path. According to survey result of china enterprise survey system (2003), governments use administrative ways to appoint top executives much more often than other market ways, this shows the so called administrative appoint model still existed in transforming china. With the administrative appointment phenomenon, many top executives in SOEs have political connections, with a close relation with government. Previous research like Fan et al.(2007) had found in their research nearly30%CEOs have political connections.We have many reasons to believe, the widely existing political connections phenomenon reflecting frequent interaction between SOEs and governments. As for governments, through political connected top executives, they can intervene SOEs in a more convenient way; as for SOEs, they can build and maintain fine relationship with governments through channels of political connected top executives.Specifically, this paper will focus on how political connected top executives affect SOEs. On the one hand, top executives with political connections have some substantial character of government officers. SOEs in china can be divided into different administrative rank according to their size, industrial position and their influence, top executives of them have the same administrative rank. Under the administrative appointment model, the choose and appointment of top executives is basing on standards of government officers, with relevant treatment.They can be exchanged as the government officers with same administrative rank, even used as key leaders in provinces. But once dismissed, they will face a sudden drop of then-reputation and social position, it will be hard for them to find a fine job in political system, this is the so called "lock-in effect"(Zhou,2007). So they usually pay great attention to their political achievement and political position, they will try their best to keep their position and get fine result in the so called political promotion champagne race. On the other hand, they have characters of merchants as well. They are very familiar with business of SOEs, as they are on the frontline of market competition. It is their responsibility to ensure the companies get a fine result in furious market competition. Previous officer experience will make them understand policy better, having fine communication ability with the governments, both are necessary for the business of SOEs. All in all, politically connected top executives have the character both government officers and merchants, this distinguish them from usual managers. How will they affect the SOEs is the key problem.this paper tries to explore..This paper can be divided into eight chapters, including:chapter one, introduction; chapter two, institution background analysis; chapter three, theory retrosepct and literature review; chapter four, political connection and the incentive of government intervention; chapter five, political connection and recessive convenience; chapter six, political connection and double cost; chapter seven is political connection and corporate performance; the last chapter is research conclusion. Specifically:Chapter one is research introduction. This part analyzed research background and significance, introduces research thought and method, showing the total research structure of the whole paper.Chapter two is institutional background analysis. This chapter can be divided into two main parts:SOEs reform retrospect and government intervention behavior. In the SOEs reform retrospect part, we introduce the original of SOEs reform, then retrospect different stages of thirty years SOES reforms, and analysis important argument and advancement, finally we analyze future challenges SOEs may face basing on summary the experiences of SOEs reform. In the intervenetion behavior part, we analyze the relationship between central government and local governments, competition between local governments, political promotion champagne race between government officers, and the government control of SOEs. This chapter plays a role of bedding for empirical research.Chapter three, theory retrospect and literature review, this part first retrospects basic theory necessary for our research, then it sums up important theory issues in the SOEs reform; then we review related research in SOEs and government intervene, political connections. The main aim of this part is to help readers to get a brief impression of previous research.Chapter four, political connections and the incentive of government intervention:Empirical study begins at this chapter. Previous research about political connection usually base on the private companies, explore their incentives to build political connection. Considering the political connection is only one kind of many connections between government and SOEs, using previous research for reference, our paper divided the government intervene incentive into economic incentive and political incentive, using empirical models to test hypothesis, and explores the intervene behavior diffemence between central and local government.Chapter five, political connections and recessive convienences.In this paper we call these convenience brought by political connections recessive convenience, we focus on finance convenience in this chapter. We tests whether significant difference exists between political connected group and non-political connected group. We affirm that political connection will affect the period structure of bank loan, we explored the difference of recessive convenience in central SOEs and local SOEs. Furthermore, we check will the advancement of market economy restrict the political connection. Chapter six, political connections and double cost.Political connection make SOEs pays while gains recessive convenience. This part main discuss the negative effect of political connection. We divide the cost SOEs paid into political cost and agency cost, we try to see if political connection will bring more double cost to SOEs.Combining the research of chapter five and chapter six, we try to reveal the complex effect of political connections, to show the subtle relation between government and SOEs.Chapter seven is political connection and corporate performance. We confirm the negative effect of political connection, further more, why political connections bring negative effect? Our paper finds political connections do bring more non-productive expenditure to SOEs, it is quite possible the root of its negative effect.Chapter eight is research conclusion. We review research conclusion, analyze the policy meaning, illustrate research limit and point out future direction.Using the data of SOEs listed companies, main research conclusion are as follows:1. Political connection and government intervention incentive. The nature of political connected top executives is all government promote their policy and considerations from personnel path, it’s a key hand grab for government to internalize their goals to SOEs. The widely existing political connections, is a reflection of government intervention in personnel field of SOEs. Specifically, political connections in central government mainly reflects its strategy consideration, including keep the big and let the small go, and adjust the SOEs strategically, while in the local SOEs, politicall connections mainly reflect economic incentive of local government to develop local economy and get more tax income.2. Political connection and recessive convenience. Our paper focuses on financing recessive convenience. Firstly, We find that SOEs with political connections facing smaller finance restrict compare with non political connections; secondly,we divided our samples into high financing restrict group and low financing group, we find political connections do helps companies in high financing restrict group to get more bank loan; thirdly, we divide bank loan into long term loan and short term loan, we find political connection do help firms get more long term bank loan, while this is not significant in short term loan group; Fourthly, empirical results shows, local SOEs do get more long term bank loans, but in the central government SOEs we did not find the same conclusion; finally, we find the advancement of external market do restrict the political connections to get finance convenience.3. Political connections and double cost. Specifically, we explore the close relationship between political connection and double cost. For political cost, we foucs on redundant staffs; for agency cost, we focus on management fee and non-peculiar consumption. We find political connections do bring severe political cost and agency cost to SOEs, secondly, double cost problems exist in both central and local SOEs, while in local SOEs double cost problem is more severe.4. Political connections and corporate performance. In our paper we will discuss the overall effect of political connection to SOEs and its possible influence path. We find that the political connections in SOEs do harmed the corporate performance, especially in the local SOEs group. Furthermore, we bring in framework of non-productive expenditure to explain possible influence path of political connection. We find political connections do bring more non productive expenditure in SOEs, and in local SOEs the situation is even worse.The main improvement and innovation of this study can be summary as the following four aspects:First of all, from the viewpoint that political connection is the reflection and grab hand in SOEs personnel field, we expand our understanding of political connection and government intervene incentive under transformation china. Private firms build political connection to reach their aim of political strategies, in order to get policy favor. Different from the incentive of private firms, the political connections in SOEs is just one kind of these many close relationships between SOEs and government. Using previous research for reference, our paper defines political incentive and economic incentive of government intervention, explores possible differences between central and local governments.Secondly, this paper deepens our understanding between political connection and recessive convenience. As Chen et al.(2005) point out, as for the research of china economy, we cannot ignore some complex and recessive rules, for political connection it is just proper to say this. The political connections can bring SOEs some convenience, SOEs can enjoy them, and government knows it, but in all rules and policy files we seldom see the description of them, these convenience exists in a hidden way, we call them recessive conveniences. This paper explores the relationship between political connections and financing convenience from financing restriction, financing period structure, influence of advancement of market economy, intervene difference between central and local governments. Our research conclusion will help us to understand the influence factor, to rethink the finance discrimination in our finance system.Thirdly, this paper reveals the close relationship between political connection and double cost. Political connection make SOEs get more burdens while bring them conveniences. Basing on political cost and agency cost theory, we divide the cost SOEs paid into political cost and agency cost, we check the relation between political connection and double cost empirically, and discuss the difference in central SOEs and local SOEs. The research conclusion reveals the policy burden and agency problem, and it also help us to understand the subtle effects of government intervene bring to SOEs.Finally, I check the harmness political connections bring to corporate performance, and we introduce new framework to analyze the influence path. Previous research like Wu et al.(2010), Wang and Wu (2008), Fan et al.(2007) find the political connections will harm the corporate performance. Considering differences in samples and variables, these conclusions need to be further checked. Our paper define political connections in our own way, and use market performance as well as accounting performance, testifiy will the political connection harm the corporate performance. And basing on previous research, we use the non productive expenditure to explain the influence path. Our conclusion confirms the negative effect political connection brings, and it renews our cognition of how political connections harm corporate performance. |
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