Empirical Research On The Relationship Between Political Connections And Firm Performance

A well-established system can effectively promote economic growth;the system will be constantly adjusted and improved with the changes in the economic situation.China has implemented “planned economy” and “market economy” development model in parallel since 1980 s.Enterprises face a complex and uncertain business environment during the period of economic transition.The uncertainty of institution has a significant impact on the external environment.The relationship between government and enterprises plays an important role during the development of enterprises.The political connection is a multi-disciplinary research field,and it is also one of the main topics in the research on non-market area.The existing studies suggest that the political connection significantly impacts on the firm performance,but they do not have a consistent conclusion on influential direction.As the research on the mediation of the relationship between political connection and firm performance in primary process,it is one of the concerning focuses on how political connection affects firm performance in different perspectives.It is more common for enterprises to establish political connections with the government in the transitional economy and the emerging economy.The relationship between enterprises and government in BGS category is described as the interaction between business,government,public and environmental elements in the non-market area.The corporate political connection,dealing with the uncertainty in the business environment,is the response to the non market effects.Regarded as an informal system,political connections from the perspective of institutional economics are complementary to the formal system.With the establishment of market dominance,the government functions are gradually changing,but the government still holds a large number of allocation rights of social resources,political connections as the most direct means to ensure competitive advantage and access to state-controlled resources,in order to avoid the risk caused by the uncertainty of the external environment in the period of transitional economy.Institutional theory emphasizes that the essence of institution is to establish a stable structure in society to reduce uncertainty in transactions.Enterprises under the restriction of institution pursue their interests rationally and make strategic choices;and its behavior is governed by formal and informal institution.When formal institution fails,informal institution plays a more important role in reducing uncertainty.The perfection of institution is an effective way for entrepreneurs to face the negative phenomena of the choice between rent-seeking and innovation.It emphasizes that the institutional change in a certain extent can release entrepreneurship.Entrepreneurship is essentially an entrepreneur's choice of resource configuration.Therefore,this study explores the mediation effect of entrepreneurship in the relationship between corporate political connection and firm performance.Based on institutional theory,this study constructs the research model of “political connections-entrepreneurship-firm performance”,and explains the impact of political connections on firm performance and its implementation way.This study suggests that the corporate political connection significantly impacts on the firm performance.The enterprise could take more preferential advantages in policy area than others because of its strength.Entrepreneurs choosing the innovation-centered strategy can effectively improve the firm performance.The degree of marketization in significant difference is related to the institutional improvement,and also impacts on the relationship between political connection and firm performance.In addition,the property rights can become the sources for enterprises to obtain government policies and other resources,and establish a stable relationship with the environment,which emphasize the constraints of the institutional environment.The nature of state-owned enterprises naturally determines their political connection,and the nature of ownership affects the relationship between corporate political connection and its performance.To summarize,The main research questions of this study are as follows:(1)This study will confirm the relationship between corporate political connections and firm performance.(2)Entrepreneurship mediates the effects of the relationship between political connections and firm performance.(3)Institutional environment has moderating effect on the relationship betweenpolitical connections and firm performance.(4)Firm ownership has moderating effect on the relationship between political connections and firm performance.Based on establishing the framework and forms hypotheses,this study builds the test model which is collected database from part of manufacturing industry between2011 and 2015 from CSMAR.This research mainly obtains the following conclusions:Firstly,political connections effect significantly on corporate performance in the perspective of institutional theory,entrepreneurship plays a partly mediating role in political connections on firm performance.Secondly,the impact of institutional environment on the relationship between corporate political connections and firm performance has not been verified.Finally,the moderating effect of corporate ownership in the relationship between political connections and firm performance has not been supported.But in the path analysis,the corporate ownership has a significant positive impact on the relationship between corporate political connections and entrepreneurship,and the corporate ownership has a significant negative impact on the relationship between entrepreneurship and firm performance.The conclusion of this study has certain theoretical and practical inspiration.Theoretically,first of all,the framework is completely constructed in the field of non-market field.The framework is analyzed and theoretical hypotheses are put forward based on institutional theory.Secondly,the validation of the effect of entrepreneurship is the exploration for the existing studies of the relationship between corporate political connection and its performance.Finally,based on the process of China,the nature of ownership as moderation is introduced.Practically,the complexity and uncertainty in the business environment can be reduced by the perfection of legal system,the continuous improvement of formal institution and the high marketization during the transition.The effect of political connection as informal institution will gradually weaken.Therefore,enterprises seeking to build political connection need to consider comprehensively.The influence of political connection on performance is realized through appropriate strategic choices.At the same time,corporate political connection is not the unique way to get preferential policies.Enterprises should rationally deal with the construction of political connection.The study still has limitations.Firstly,because the related firms are not full listed in the domestic stock market,the explanation using panel data of the relationship between political connection,the entrepreneurship and the firm performance is affected.At the same time,the study adopts quantitative statistical analysis;therefore case studies are the research direction in future.Secondly,the measurement of variables has limitations.The measurement of firm performance uses the weighting method of ROA and ROE,avoiding some defects,but the method still needs more inspection.In addition,the measurement of entrepreneurship based on the measuring method of technological innovation as an alternative method is still in exploration,especially for the listed enterprises.Finally,the research selected part of the manufacturing industry as the research object.The sample can be expanded in different perspectives;following research may focus on the impact of the institution on corporate behavior,strategic choice and firm performance.