Political Relationship, Firm Value And Work Mechanism:Evidence From Chinese Small And Medium-sized Enterprises

There is a growing number of economic literature on the implications of political relationship. Political relationship which is mainly prevalent in transition and developing countries, is considered as a mechanism to replace legal system and market. Because of the state control of the key resources, small and medium-sized enterprises can not gain access to resources such as bank loans as easily as large enterprises and state-owned enterprises, the small and medium-sized enterprises have to establish the political relationship to gain access to resources which ultimately increases the value of firm.Taking as our specimens the small and medium-sized enterprises listed during2005to2010in Shenzhen Stock Exchange, and according to whether a company have a state minority shareholding or the CEO of a company is a former or incumbent government official, or a member of the People’s Congress or a member of the Chinese People’s Political Consultative Conference, we have judged whether this company has a political relationship. The sample period is divided into the period of non-financial crisis and the financial crisis.The first, we find that political relationship has a significant positive effect on firm value. And During the financial crisis, role of political relationship has been weaker. The second, having analysed paying taxes and having access to loans, we find paying less taxes and gain access to more loans from banks can increase the value of firm. Having estimated the tax equations, we find the political relationship force firms to pay higher taxes and help firms to gain access to the loans from banks,and have a positive effect on the size of loans.