Executive Political Connections Of Chinese Private Enterprises And Bank Loans

With the continuous development of private economy, private enterprises make a significant contribution to national economy. However, private enterprises are facing with external financing difficulties. Executive political connection, which is a widespread social phenomenon, is an important part of the external environments of Chinese private enterprises. Success in using political connections to get bank credit supports, directly relates to the long-term development of private enterprises. Based on reviewing related literature, this paper examines the influence of executive political connections of private listed companies on bank loans. The study shows that: (1) Almost 50% Chinese private listed companies have political connections. (2) Private listed companies with political connections have more total bank loans and more long-term bank loans. (3) Political connected private listed companies, with less collateral, also have more total bank loans and more long-term bank loans. (4) In the regions with lower level of marketization, the effects of (3) and (4) of political connections are stronger. The results deepen the understanding about how the political connections of executives help private enterprises obtain bank credit support, and expand the research of the problem that how the political connections as an informal alternative mechanism work. Otherwise, the study on diversity of the effects of political connections, resulting from different institutional environments, leads to deep insights of the institutional origins.