Corporate Governance Of Politically-Connected Enterprises: An Analysis Based On The Connected Transactions Of Publicly Listed Firms In China

A series of paper of LLSV are based on the research of corporate governance of advanced countries. Their research found out that the difference of investor protection is the main reason for the different results of corporate governance of different countries. But their research did not include China in their sample. Actually, China is different from other countries for its typical emerging market and immature capital market. Besides, China is a country typical for its large number of state-owned enterprises. The central or local governments act as the terminal controller or the first largest stock holder of those enterprises. If the research only based on the internal corporate governance mechanism, then the result cannot be convincingly. In other words, we should analyze the external corporate governance mechanism at the same time.This paper tends to analyze the corporate governance of politically-connected Chinese listed enterprises both internally and externally. The paper takes the connected transactions as the main variable, because the connected transactions act an important role in the corporate governance. From the early thesis, we learn that the politically-connected enterprises have their corporate value change with the connected transactions, and those transactions can increase or decrease corporate value by tunneling or propping-up behavior. Those behavior are called as "grabbing hand" or "helping hand" by the controlling government. So we can analyze the corporate governance of politically-connected listed firms through the connected transactions between the controlling government and the listed enterprises.By positive analysis, the result demonstrates that decreasing government intervention, promoting the financial marketing process and improving the external environment of the corporate governance can increase the corporate value of politically-connected enterprises. Besides, the improvement of internal corporate governance mechanism such as the separation of the ownership and the control and the information exposure mechanism can also improve the corporate value. The result also demonstrates that the central government and the municipals act as the "helping hand", and the governments of the provinces act as the "grabbing hand" for their more diversified social object. The results are accord with our early assumption. And the result gives us very important political suggestions. That is, we should promote the "grabbing the big, relaxing the small" policies.