Empirical Research Of The Political Connection With Private Firms Performance

The ubiquity of political connection among enterprises which was firstlymentioned by Krueger(1974), has offered a new angle for both domestic and overseasscholars and from this, studies about the political connection of enterprises started toappear. However, whether it has a positive effect on the enterprise performance ornot has not been reach an agreement by domestic and overseas scholars and a reasonfor this, can be the difference of the institutional environments. As the legal systemin our country for protecting the rights of private enterprises still remains somedefects, the enterprises may choose to build a political connection with localgovernments to make up those imperfections. Questions may arise from here, in ourcountry, whether the effects from political connections exist on the private enterpriseperformance and if it does exist, are there more good effects or bad effects? Fromthis point, the study about the effects of political connection among private enterprisesand local governments are meaning for both the study itself and the privateenterprises.This research has taken a sample of1,938private enterprises form Shanghai andShenzhen and built a regression model under the condition of taking control of therelated variables of company characteristics and company governances to examine,firstly, the effects of political connection on enterprises performance and then theeffects of political connections with local and central governments on thosecompanies, thirdly, whether the percentage of the numbers of people who has apolitical connection with governments can affect the enterprise performances and lastbut not least, the effects on enterprise performances in different constitutionalenvironments. The results of this study has shown that,1) In general, the politicalconnections between private companies with our government have positive effects onenterprise performance, in other words, a political connection with governments canpromote the enterprise performance.2) A positive effect exists on enterprise performance who has a political connection with central government and the effects isnot obvious between private companies and local governments.3) The percentage ofnumbers of administrators in private companies has a positive relationship withenterprise performance.4) Taking the different institutional environments intoconsideration, a political connection still have a good effect on enterprise performancewhich means more local government intervention more positive impacts on privateenterprises there will be.