A Study On Effects Of Executives' Political Connection?the Governance Behavior Of Board Of Directors On The Governance Performance In Private Listed Companies

During the progress of reform and opening up,the policy of Chinese government applied to private enterprises also undergoes a series of changes.The private economy was excluded at the beginning,and then was considered as an important supplement to state-owned economy,and then was allowed to be coexistent and coordinated developed with state-owned economy,and finally is evaluated as an important part of China's market economy.At present,private enterprises have indisputable rationality and validity in China.It maintains a good developing trend even in the face of challenges including the the financial crisis and show infinite vitality and vigor and is playing an increasingly important role in the national economy.In the highly competitive market environment,improving the governance performance of private enterprises is an important guarantee for its sustainable development.Executives are one of the most important factors influencing governance performance.Executives' political connections affect governance performance by influencing the governance behavior of the board of directors.Therefore,this paper studies how executives'political connections affect the governance performance of private enterprises through the governance behavior of the board of directors.At present,the academic research on the political connection and the corporate governance has been studied deeply.Some of the literatures are not limited to the traditional research paradigm"structure?performance",and began to focus on the mediating effect of corporate behavior,board behavior.But the current literature focuses more on the linear perspective,and does not incorporate the resources of the executive political connection into the research paradigm,and has not yet established a theoretical framework for the relationship system between executive political relations,board governance,governance performance,which makes the research paradigm and practice logic of political connection on the impact of private enterprise inconsistent.In this paper,3065 effective samples of private listed companies from the Main Board and the SME board in China's Shenzhen Stock Exchange from 2009 to 2013 are obtained for the study.The the corporate governance performance(shareholder wealth,R&D investment,the risk of bankruptcy,Class ? agency costs,type? agency costs)are taken as explanatory variables.The executives' political connection is taken as explanatory variables.The governance behavior of board of directors is taken as the mediation variable.Method with Nonlinear mediation effects is adopted to verify the approach with that The executives' political connection and governance behavior of board of directors affects the governance performance.Therefore,the research of this paper makes the theoretical model and practice logic more consistent,which enriches the theoretical research results of senior management and the governance of the board of directors,which is conducive to improving the adaptability of private enterprises from the perspective of executives' political connection and board governance.sustainable development and promoting the sustainable development of enterprises.However,in the process of economic transformation,the behavior of enterprises,especially private enterprises are often plagued by high transaction costs,the imperfect regulations of market systems,government's aggressively intervention and other issues.To protect the normal market transactions,companies have to seek asylum of informal institution,the alternative mechanism for the formal market and legal system.As an important alternative mechanism,executives' political connection is playing a more and more significant role in unsound market mechanism.According to resource-based theory,executives' political connection is actually a set composed of many kinds of important resources,which are important and helpful for enterprises to get the government's commitment and even to exert influence on government decisions..From this theoretical perspective,the political connection is an important political resource within the enterprise and can eventually be transformed into a potential competitive advantage for the enterprise.According to social capital theory,political connection is considered to be a very important and critical social capital in the enterprise,with which the enterprises can obtain the scarce resources needed for their development from the government or society.Political connection is different from corruption and is legitimate on legal levels unlike the usual sense of corruption.Therefore,in this paper the executives' political connection in the enterprise is believed to be distinguishable with the corruption in the traditional sense,and is a very critical and important resource for the enterprise.It is a unique core competence which plays an important role in improving the enterprises' value to some extend,especially when enterprises are in the period of economic transformation during which the market system and the regualtions and laws related are not perfect.The existing measurement methods for the variable of political connection are very obscure.Most of the current study related uses a virtual variable to determine the existence of the political connection in executicves of enterprise rather than the intensity of the political connection.In this paper,the methods with virtual variable are believed to be inadequate to describe the difference between executives' political connections in different enterprises.Considering the practical situation of China's private enterprises and also the characteristics of executives' political connection,a evaluation system is constructed in this paper for the executives' political connection in private enterprise.The indicators of first class are selected from board of directors,the board of supervisors and management personnel,and then the indexes of secondary class are created according to the structure of board of directors,board of supervisors and management personnel.12 indicators in secondary class are set.Considering the fact that the authority of the former government officials is low and the authority of present government officials is high,so,each secondary indicator is decomposed into two indicators in third class.There is a big difference between the authorities of officials in different levels which reflect the impact of the political prestige and political influence.So,each indicator in third class is divided into five indicators in fourth class.In addition,the difference between the authorities of officials in different departments at the same administrative level is also relativre big.So the departments are divided into indicators in fifth class according to the evaluation of risk.Most of the current studies focus on the direct correlation between executives' political connections and the value of enterprises,but few researchers explores the mechanism how the executives' political connection affecst the governance performance,that is,the approach of executives' political connection to exerts influence on the final governance performance of enterprise.The only way to explain througly the impact of executives' political connection on the enterprise especially the private enterprise is to analyze the approach in detail.From the perspective of resource-based theory,executives' political connection is considered as a vital and rare resource in enterprise and then the resource obtained can exert impact on the governance performance only through a reasonable and effective resource allocation.From the perspective of logical relation,executives' political connection affects the governance practices of listed companies at first,and thus affects governance performance through the governance behavior of board of directors.Compared to governance performance,the relation between executives' political connection and the governance behavior of board of directors is much closer.Therefore,the important role of the governance behavior of board of directors as an mediation variable is emphasized with more consideration in this paper and a paradigm is constructed to study the mechanism of the formation of governanc performance,which is defined with the form of "executives' political connection ?the governance behavior of board of directors?governance performance".In the private listed companies,the relations between executives' political connection and the governance behavior of board of directors are inverted "U" shaped,i.e,the stronger the executives' political connection is,the more powerful the governance behavior of board of directors is.But the increase in the rate will be gradually reduced.When executives' political connection is strong enough,the strength of the governance behavior of board of directors will weaken gradually.In the private listed companies,there is a significant inverted "U"shaped relationship between the governance behavior of board of directors and shareholder value.There is no significant inverted "U" shaped relationship between the governance behavior of board of directors and the innovation of corporation but there is a logarithmic relationship between them.There is a significant "U" shaped relationship between the governance behavior of board of directors and the bankruptcy risk.There is a significant "U"shaped relationship between the governance behavior of board of directors and Class ?agency costs(turnover of total capital)and also between the governance behavior of board of directors of board of directors and Class ? agency costs(the other receivables rate).The impact of executives' political connection on shareholder wealth,R&D investment,the risk of bankruptcy,total asset turnover and other receivables rate through the governance behavior of board of directors has a significant instant and indirect effect,the mediating effect of the board governance practices is nolinear.The executives' political connection does not affect the shareholder wealth,R&D investment,the risk of bankruptcy,total asset turnover and other receivables rate directly,but by means of the mediating effect of the governance behavior of board of directors.The innovation of this paper is as follows:(1)Constructing the model of executives'political connection index based on private enterprises.Combined with the characteristics of private enterprises and the current actual situation,taking into account the characteristics of executives' political connection,limitations of the current measure of political connection methods,this paper chooses the Analytic Hierarchy Process to build the model of executives'political connection index based on private enterprises.(2)Establishing the theoretical mode about the impact of the executives' political connection on corporate governance performance through the governance behavior of board of directors.The paper formats two path models of the”the executives' political connection?the governance strategic behavior of board of directors?the governance strategic performance"," the executives' political connection?the governance oversight behavior of board of directors?the governance oversight performance",to further deepen the research paradigm of "structure?conduct?performance "to break through the traditional research shortcomings on the model of the "executives' political connection?the performance ",so the paper has a very important value of improving the theory and empirical research on the study of corporate governance.(3)Using the verification method of non-linear intermediary effect.For the first time,the verification method of nonlinear mediation effect is applied to the paradigm of "the executive' political connection?the governance behavior of board of directors?the governance performance".It is found that the nonlinear mediating effect of the governance behavior of board of directors exists in the relationship between executives' political connection and the governance performance,It is proved that the instantaneous indirect effect of executives' political connection on the governance performance through governance behavior of board of directors is significant.This method breaks the linear relationship of traditional research and further improves the research methods of executive' political connection and board governance.Although this paper constructs the executive' political connection model to quantify the political connection comprehensively and objectively,but because the executive resume is manual finishing,there are subjective factors in the process of transformation,so there will inevitably be some measurement error.At the same time,this article is concerned about the public information,in fact invisible political connection can not be ignored,but in this paper the dominant political connection from the relationship between relatives,friends,students,comrades and so on,can not be verified,naturally can not be measured.In this paper;when measuring the governance behavior of board of directors,it is far from enough to select the meeting frequency as a proxy variable of the board's governance behavior.There are many aspects of the governance behavior of the board of directors,so it is comprehensive that this paper only consider the frequency of the meeting,although the empirical results verify the assumptions presented in this paper.