| Along with the deepening of economic reform in China, private economy developed rapidly and has been achieving a significant increase in the proportion of the national economy. As a result, private enterprises are widespread concerned in the community for their operations and performance. During the period of China’s economic transition, policies and laws doesn’t trend to provide and protect private economic comparing against state-owned enterprises due to some political and factors. In addition, China’s regional economic development is very uneven and there are huge differences in the degree of market transition, official intervention and protection for property rights due to a variety of natural, historical and policy environment. These factors affect the operation of market mechanisms, and ruslut in private enterprise large depending on government. Thus, to gain legitimacy and overcome the negative impact of the governance, private enterprises raise an important stratege of political connection. The social phenomenon of political connnection and its business operations and performance effects is widely paid attention by academics accordingly. However, there is lack of theoretical analysis for political connections, moreover, the empirical evidences are paradox among domestic academics. By analyzing relevant research on the basis of institutional background and applying relevant basic theory of sociology and economics, this article systematically demonstrates the social phenomenon of political connnections, and then a quantitative analysis to its effect is given.Interpersonal relationships are looked on as an critical resource based on social capital theory, and benefit can be gained by investing in it. By the forming a politcal connenction with government, private enterprises invest in this resource business and government to establish a political association can be seen as the investment of this with the aim to obtain favorable terms of policy and governance. By its nature, political connection is a recessive relationship contract between enterprises and government. Private enterprises seek to establish a political connenction with government to gain benefit, which can be regarded as signing a contract. By contract, Private enterprises transfer interests to government and gain the residual claim economic interests. This intersts come from non-productive activities profit, which cause the social welfare reducing. So establishing a plitical is a behavior of rent-seeking. Political connection is an innovation of informal system, which can partly be seen a replacement or supplement to market mechanism and governance. The evolution of this innovation is a process of informal institutional induced change. By political connnection, private enterprises get appropriate policy support to facilitate its access to more funds and resources, and obtain additional economic benefits, thus, they gradually accumulate competitive advantage and enhance their enterprise value. So, we deem political connection has the effect of increasing enterprise value. In a relatively worse institutional environment, private enterprises can not effectively gain resources and utilize market mechanism, these enterprises depend on government deeper than the enterprises in better institutional environment, and they also trend to establish a close relationship with government. So, the value effect of political connection is enhanced in worse institutional environment.This article deduces that political connections has a effect of increasing enterprise value and institutional enovirment enhances this effect, and then executes an empirical analysis per samples of China’s private listed companies data from year2003to year2006. By theoretical analysis and empirical test, below conclusions is derived:(1) By investing in the social relationship capital of political connection, private enterprises obtain a series of government relative preferential policies, and the implicit relational contract with government can be for their economic income, so that political connenctions increase enterprise value accordingly, i.e. political connenction has enterprise value effect.(2) Based on the background of The effect of the background of China’s economic trasition, the inter-regional environmental differences influence enterprise value effect of political connnections’:this effect is more significant for the political connenction private enterprises which are located in the region with worse institutional environment.(3) In region with worse institutional environment, private enterprises have lower enterprise value than the matched group.Private enterprise gain economic motivation to build political connections to overcome the negative impact of worse institutional environment, political connenction is a informal alternative for market mechanism to overcome its lacunae.This study proved the political connection of private enterprises is indeed brings economic benefits to its associated companies. However, as a social relationship capital, the political connenction added to the economic factors enhances individual enterprise’ benefits, while it may damage the social welfare. Based on this understanding, this article proposes the following policy recommendations:(1)to prompt market mechanism to create a fair competitive environment for enterprises, so that enterprises focus on productive activities and economic gain, and thereby materially enhance enterprise value from the overall perspective (2) to guide private enterprises to participate in fair competition, to gain a competitive advantage through continued innovations in technology, management, production and marketing, and punish acts of lawlessness.(3) to establish a new type relationship of collaboration and mutual assistance between government and enterprise. This article deeps the research of relations in institutional background, political connnection and enterprise value. This study also provides a theoretical basis for the government’s economic policy and private enterprises’strategic decisions. |
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