Political Connections And Enterprise Performance In P.R. China

Systems can be constantly adjusted to the changing economic situation in that a well-designed system can promote economic development.During the period of economic transition,factors like the uncertainty of systems can significantly affect business environment so that the relationship between government and enterprises matters.From the perspective of institutional economics,political connections as informal systems are considered to be the reaction to non-market factors in an uncertain business environment,which are complementary to formal systems.In China,with the deep-going of reform and opening up and sustainable economic growth,private enterprises have been developing rapidly and become an indispensable power to the country's development.While government functions have been transformed gradually,the government still occupies a great deal of social resources that enterprises rely on.Besides,compared with state owned enterprises,private enterprises still confront with their own obstacles or unfair treatment.Therefore,to ensure competition advantages,obtain resources controlled by government and avoid risks linked to uncertain business environment,private enterprises become keener on seeking and setting up political connections to gain necessary information and resources through the relationship with government.The political connections in this article are the active behavior of enterprises,trying to establish relations with government departments or government officials through various channels,gaining advantages that other enterprises do not have,and pursuing their own interests,which is an important resource of enterprises.Existing literatures reflect that political connections impose significant impacts on private enterprise performance in China,however,there is no consensus on whether the impacts are positive and its mechanism of action is still one of the most heated research points.To replenish the study in this field,this dissertation follows the path of building political connections,whole impacts of political connections on enterprise performance,the mechanism of political connections' effects on enterprise performance,to study the role of private enterprise political connections as an informal system in the framework of establishment,existence,value.Based on existing research and Chinese Private Enterprise Survey(CPES)data,this dissertation creates index system of various kinds and stratums of private enterprise political connections,discusses correlation of heterogeneous political connections and private enterprise performance,and how political connections,an informal system,affects enterprise performance.The deep reveal of the relationship between political connections and enterprise performance may contribute to develop suitable strategies for private enterprises and also provide references to improve legal system,protect market environment and boost national economy.This dissertation tests the hypotheses one by one and draws following conclusions:1.Whether as an implicit institutional arrangement,as an important part of corporate social capital in the long-term,or as a special resource input for the enterprise in the short-term,political connections affect private enterprise performance positively and significantly,and enterprises will gain more beneficial policies than others if they have got stronger political connections.Different kinds and stratums of political connections both affect enterprise performance positively,while current political connections do better than previous connections.2.From the perspective of resisting negative external shocks,the overall political connections can affect the performance of private enterprises through industry access barriers and expenditures for non-productive activities.Further refinement of the types and levels of political associations for analysis found that industry entry barriers are not the intermediate variables of the CPPCC level and job political connections.Expenditure on non-productive activities is not an intermediate variable that influences the performance of private enterprises by the level of the people's congress and the political connection of the post.From the perspective of alleviating the internal operating constraints of enterprises,the overall political connection can affect the performance of private enterprises through the level of financing and corporate governance.Further detailing the types and levels of political associations,we found that the previous political associations and the ranks of government institutions cannot influence the performance of private enterprises through financing levels.3.Political connections have significant impacts on the performance of private enterprises,but the interaction coefficient of political connection and business environment is not significant,which is inconsistent with the research of most scholars in China.The possible reasons are,On the one hand,under the unstable business environment in China during the transition period,private enterprises are encouraged to assess the business environment in their regions,and to ensure the development of their production and operations,they rely more on establishing or maintaining political connections.To deal with the uncertainty of government behavior and flexible institutional arrangements;on the other hand,the more unstable the business environment is,the more private entrepreneurs need to invest more energy,time or cost to participate in building political connections or lobbying and fighting.In terms of non-productive activities such as special policies and benefits,it is natural that it is impossible to allocate more energy and costs to the production field,thereby reducing the enterprise's expenditure on productive activities.Therefore,the above-mentioned positive and negative effects make the interaction coefficient insignificant and the adjustment effect of the business environment is not significant.This dissertation may innovate in the three following aspects:1.The sample data used in this article is more representative and reliable in interpretation.In the transitional period,China is still dominated by small-scale,clustered,and family-owned private enterprises.At present,domestic studies mostly use private listed companies as samples for empirical analysis.This is of course very important,but in fact it lacks representativeness and universality,This dissertation applies CPES data,which is organized by the United Front Work Department of CPC Central Committee,All-China Federation of Industry and Commerce,State Administration for Industry and Commerce of the People's Republic of China,China Society for the Study of the Private-Sector Economy.Compared with other data,CPES data are representative,reliable and widely covered,which can effectively reduce the respondent's strategic avoidance,and can better support the empirical research on the relationship between political connections and private enterprise performance.The research results strengthen the top-level design from the national strategic level under the new normal,and formulate policies to guide and support private enterprises2.Political connections are estimated multi-dimensionally to contribute to studies on the mechanism of action between political connections and private enterprise performance.Based on existing research,this dissertation integrates and details the estimation of political connections: It analyzes the effects of political connections on private enterprise performance in both time dimension(previous political connections or current political connections)and stratum dimension(administrative level or position level),and further accurately prove the impact of political connections on the performance of private enterprises,avoiding the general verification of different types of political connections as a whole.On the meantime,this dissertation breaks through the limitations of existing research,which explores the relationship between political connections and the performance of private enterprises from one aspect or two aspects,this dissertation concerns both outside risks and internal governance,including four aspects like entry barriers of industries,non-productive activities expenditures,internal governance and financing capacity in the mechanism analysis.The multi-dimensional discussion reveals the mechanism of action of heterogeneous connections on private enterprise performance.3.Political connections are the crucial bridges between enterprise outside environment and micro governance environment but existing literatures seldom pay attention to the effects of enterprise internal micro-governance on private enterprise performance.This dissertation applies resource-based view and combines outside and inside perspectives to emphasize the study of internal micro-governance,which reflects the role of internal governance in the relationship between political connections and enterprise performance.This dissertation not only enriches the research on political connection and private enterprise performance based on institutional theory,resource-based theory,and social capital theory,but also provides beneficial practical enlightenment for private enterprises on how to use properly grasp and use political connections to improve business performance.