The Effects Of Politically Connected Managers On Agency Cost: Evidence From China's Listed Private Firms

Many domestic and broad studies show that political connection, as a firm feature, just like ownership structure, will have an impact on firms. In China, which has just transformed from a highly centralized planned economy to a market economy, the government has great control of the market and a large number of listed private firms have political connection. Therefore, the study of political connection is meaningful. It is generally believed that the performance of government workers'political performance instead of business ability is more outstanding, therefore politically connected managers are less professional than those without political connections, but the impact is higher with regard to management expenses and is lower concerning fixed asset turnover ratio.The paper consists of six chapters. The first chapter focuses the topic significance, research thought, content frame and main innovative points; the second chapter is about literature review, political connection as local bureaucrats has positive impact on firm value, such as bank loans, tax preference and operation, however so far there are not many studies of impact of political connection as local bureaucrats on operating expenses and fixed asset turnover ratios, so the paper mainly focuses on this point. The third chapter introduces the forming historical background and the motivation of political connection government from the point view of a private enterprise and government departments. The fourth chapter discusses economy theory analysis, that is to analyse theory analysis of political connection government background and cost effect by applying the agency cost theories, rent-seeking theories, guanxi and manager theories. The fifth chapter talks about multiple regression of firm management fee and asset turnover ratio by choosing individuals who controll the a-share private firms of shenzhen during 2007-2009 city as the samples in order to study the impact of political connection on firm cost effect. The sixth chapter is mainly about conclusion and countermeasure suggestions for esearch limitation. The originality of the paper : (1) political connection managers have no obvious impact on firm operating cost but has obvious negative impact on asset turnover ratio which illustrate that political connection managers have impact on operating management; (2) Senior executives consist of presidents and general managers, the regression result shows that presidents and general managers with political connection have no obvious impact on firm operating cost, but presidents with political connection have obvious negative impact on assets turnover ration, while general managers with political connection have no obvious negative impact on asset turnover ratio, which demonstrate that the presidents with political connection have negative impact on assets turnover ration . Therefore , private listed firms should consider the advantages as well as disadvantages brought by employees with political connection when appointing employees with political connection as presidents.