An Empirical Analysis On The Motivation And Consequence Of Political Connection In Private Enterprise

Since the CPC Congress in1992proposed the development of the socialist marketeconomy, all kinds of market subjects reformed and continued a stable development, therapid growth of the private economy wins the attention from the world. Until the thirdquarter of2012, the number of registered private enterprises has exceeded1000, grow12.6%compared to the same period, has89079000employers, the proportion ofprivate economy in total GDP was more than60%.It has made great contribution toChina’s economic growth, social progress and employment. As China is in the period ofeconomic transition, The legal system needs more development and implementation, itcan’t give full protection to the private property rights of enterprise. Moreover, buildingthe socialist market economic system needs a process. Due to the different resourceendowments, geographical location and traffic condition, regional economicdevelopment level and the process of marketization difference is clear. Governmentintervent economy running in different extent, and has more power in the allocation ofresources. This situation makes the enterprise emphasize the political strategy, and payattention to build a close relationship between the government and themselves. Thepolitical connections in private enterprise become more common. Observe the cause offormation and economic consequences of political connection in enterprises has becomea hot issue in public debate and research. However, there is lack of theoretical analysisabout the motivation of political connection in enterprise, especially for the privateenterprise in China with a economic transition background. The economic effect ofpolitical connection is also have no unified conclusion.By analyzing relevant research on the basis of institutional background and thedevelopment history of private enterprise in China, We applying relevant basic theory ofsociology and economics, systematically demonstrate the social phenomenon ofpolitical connnection’s forming, and then some quantitative analysis to its Produce andeffect are given. The legal system and its efficiency is very important,it promote theefficiency of market system in allocating resources, but our country don’t have theperfect and mature legal environment, Therefore it inevitably exist a replace mechanismto achieve the rapid development of financial market and the economic subject. Politicalassociation is an innovation of informal institution, formal institution in transitioneconomy is in an unstable state of liquidity, Political connection can be used as formalsystem’s alternative and complementary like the legal system, market mechanism etal,and exert its function. Its essence can be regard as a kind of informal institution induced change. In addition, in the theory of social capital, the social relationship is animportant resource, establishment of political association is actually an investment,enterprise can obtain investment returns, including a large number of government rareresources and preferential policies.This article uses the literature inductive method, deductive method and empiricalresearch method. By theoretical analysis, We choose the observation data of Shanghaiand Shenzhen Stock Exchange2003~2010years of private listing Corporation as asample of China’s private enterprise, and establish a empirical analysis on politicalassociation of motivation and its consequence, the results show:(1)The institutionenvironment has a incentive effect for political connection of private economy in thebackground of our economic transformation, it appears more political connection inworse institutional environment region.(2)As a kind of political resources investment,Political connection can bring some preferential policies and rare resources to increasethe value of enterprise.(3)the Financing difficulties of private enterprises can beovercomed through the political connection and it has been proved that the politicalconnected enterprise get more long-term loans.Political connection of private enterprises has a positive effect on enterprise value,but as a kind of rent-seeking behavior, it is based on the overall social welfare loss.Therefore, in order to regulate this economic behavior, reduce its loss more, we providesome suggestions below:(1)To improve the implement of relevant laws and regulationsof the private property rights and help the private enterprises has a bright developmentfuture.(2)Encourage the development of various of intermediary organizations(Association of industry and commerce, Trade unions), established a demand channelwith the government for private enterprises and improve their ability ofself-protection.(3)To prompt market mechanism and create a fair competitiveenvironment for enterprises, so that enterprises can focus on productive activities andthereby enhance the whole quality of private enterprise. This article deeps thecomprehension of political connection’s economic incentive and consequence. At thesame time, it has also provides some theoretical basis for the Chinese government’seconomic management, policy making and the formulation of private enterprise’spolitical strategy.