Theoretical And Empirical Research On The Influence Of Political Connections On Credit Financing Of Small And Medium Sized Private Enterprises

In our country, more than thirty years' reform and opening up to formed thestrongly wave, which boosted to provide a good opportunity for small and mediumsized private enterprises' development. Their important position in economy andsociety has become increasingly prominent. But the financing problem is a worldlydifficult problem, become the important obstacle to the small and medium-sizedenterprises' development. Because of the master-slave order of resource allocationsystem in china, the small and medium-sized private enterprises meet someinstitutional bottleneck constraints which they cannot break through. However, inrecent years, it is often seen that the phenomenon of small and medium privateentrepreneurs through build political connections to access the scarce resources. Thebehavior of private enterprises compete against each other to construct politicalconnection is aroused great concern in the academic circlE.As a new research field inthe theoretical circle,“what are the implications of political connections forenterprises” is the key issue of the existing research and attention, and most of theresearch object is large private enterprises. However, to the large number of small andmedium-sized enterprises, What is the specialty of political association motivation?What is the relationship between political connections and the financing constraints?What is the implication of our existing institutional background for constructingpolitical connections and political connections' effect? There has a few of researcheson these problems in academic circles.In order to explore the unknown and doubt on the theory, this paper study on thebasis of the existing literature. The whole thesis consists of8chapters, in addition tothe first chapter of introduction, chapter2-4were based on the financing theories ofenterprises, political connection theory?the theory of political connection' influence toenterprise, and analyzed the motivation of small and medium-sized private enterprisesabout the construction of political connections deeply, and analyzed the formationmechanism of financing constraints of small and medium-sized private enterprisescomprehensively, and explored the intrinsic root of seeking political connection whichis a informal protection mechanism. Chapter5-7were base on panel data of Shenzhen stock exchange321SME board listing Corporation in2007-2012years,and tried todiscuss the effect on political connections of private SMEs' credit financing byempirical analysis, and the institutional constraints of private SMEs' credit financingin the transitional period were assimilated into the empirical analysis, discussedinstitutional background how to affect political connections and financing's effect ofsmall and medium-sized enterprises. Chapter8was seek answers for whether politicalconnection is a kind of informal protection mechanism can be generalized, and putsforward the corresponding policy recommendations from government and enterprises.Through the above research, this paper draws the following conclusion:(1) Political connection is a kind of valuable resources for enterprises, expandeconomic interest is the primary motivation for enterprise to construct politicalconnection. The Motives of enterprises construct political connection includes thatseek for political protection, improving the political status and social responsibility. Inthe background of meeting the finance shackles, small and medium-sized enterprisesto build political connections is want to seek an informal protection mechanism, helpthem to break the shackles the master-slave sequence of our resource allocationsystem, and get the priority for scarce credit resources.(2) The political connection can be used as a signaling mechanism, and the creditmarket can achieve Spence-Mirrlees Separating Equilibrium, to reach the transactionin credit market. Through the panel model empirical test of the SME board listingCorporation, also found that political connection of small and medium-sizedenterprises have a significant positive effect on their credit financing. Politicallyconnected enterprises facing less financing constraints, these enterprises in creditmarket have low threshold about enterprise size, collateral value, profitability, and soon. And political connection enterprises can obtain more credit resources and payrelatively low cost. Political connection as a protection mechanism, it can help SMEsto obtain scarce resources which they were unable or difficult to obtain, has thecertain positive role to alleviate the financing difficulties of SMEs.(3) Political connections and institutional background have replaceable effect onSMEs' credit financing. Based on further expansion test of two institutionalbackground variables about social trust and marketing process, not only find the institutional background has a significant impact on political connections and creditfinancing, but also political connections and institutional background have replaceableeffect on SMEs' credit financing. In the higher social trust and faster marketingprocess area, small and medium-sized enterprises face less financing constraints, butthe positive effect of political connections to credit financing is not significant.Conversely, in the lower social trust and slower marketing process area, small andmedium-sized enterprises face more financing constraints, and political connectionsplay a significant positive role in credit financing. Under the unsound institutionalbackground, political connections as an alternative mechanism play a positive role incredit financing.In addition, the conclusion of this research has definite enlightenment for smalland medium-sized enterprises and government. For the small and medium-sizedenterprises, political connections have definite positive effect, but it is not a generalprotection mechanism, and it distorts the behavior of enterprises from the objectiveaspect. For the government, small and medium-sized private enterprises constructpolitical connections is a helpless and rational response to the unsound institutionalbackground, in order to weaken demands of political connections construction andbreak the shackles of SMEs' financing fundamentally, only by strengthening theconstruction of credit system and improving the market mechanism constantly.