Political Connection’s Impact On Firms’ Performance

In recent years, many scholars have studied political connection. They find political connection, as an informal institution, has impact on firms’performance. China is transformed from a centralized planned economy to a market economy. Although market economy plays a more important role in market, the government has great control of the market. Political connection still has great influence on firms and a large number of firms have political connection. Therefore the study of the impact of political connection on firms’performance is meaningful.Firstly, this study contains theoretical study on motivation of establishing political connection. The article analyzes the reason of establishing political connection in China in the view of system background and cultural background. This study also analyzes it by using economic theories.Secondly, taking Top500listed companies in2010ranked by Fortune (China) as samples, this article studies the impact of political connection on firms’performance. The study segments samples into state-owned firms and non-state-owned firms. Political connection is segmented into central political connection, local political connection, director’s political connection and CEO’s political connection.The results show that:(1) Political connection has significant negative influence on non-state-owned firms’performance. Political connection has positive influence on state-owned firms’performance.(2) Local political connection has more impact on firms’performance than central political connection.(3) Firms in those areas where there is more official intervention can use political connection to reduce official intervention.(4) Director’s political connection has more impact on firms’ performance than CEO’s political connection.The study broadens the field of the impact of political connection on firms’ performance and gives supplement and perfection for theory study of why firms establish political connection.