Political Relationship Effect On Debt Financing Of Private Entrepreneurs

Since the reform and opening up China’s private enterprises has grown to becomean important part of the national economy. In2011, for example, private enterprisescreated half of the country tax, providing nearly80percent of urban jobs, the privateenterprises created the total economy accounted for half of the national economy.Nevertheless, the difficult problem of financing of private enterprises is a long-termimpact of restricting one of the main factors for the survival and development ofprivate enterprises. At present, China’s economic system and legal system areimperfect, and the concept of pay more attention to state-owned, and the support ofcommercial bank credit is limited for the private enterprises.Existing research suggests that political relations as an implicit guarantee of debtfinancing, and in the area of imperfect system and the lower the level of economicdevelopment areas is more prevalent, and it can be used as an effective alternativemechanism of the system to help private enterprises to obtain bank credit support, thenmaking it out of financial difficulties and to optimizing the capital structure. However,the scale of banks’ credit, the cost of credit is governed by the impact ofmacro-monetary policy and previous studies did not consider about monetary policy.In the tightening of monetary policy or in the loose period of monetary policy, thepolitical relations for credit provided by the implicit guarantee and effectiveness as analternative system still exist? If there is, the implicit guarantee of the role of thealternative system, the effect of whether differences exist? This is in-depth study.In this article, firstly, we researched the status of political relations and corporatedebt financing through the literature search methods, and discussed the connotation ofpolitical relations, debt financing and the other related theories.Then we analyzedsimple status quo of the political relations and debt financing from the credit level andalternative systems for making it as a practical basis put forward the hypothesis of therelationship between political relations and debt financing of private enterprises, andfinally select the empirical data form the Shanghai Stock Exchange and the ShenzhenStock Exchange in A-share listing of private enterprises in2006-2010for study sample,the use of multiple linear regression method for testing the relationship betweendifferent types of political relations and the debt financing of private corporate, andfurther verify whether relationship between political relations and the debt financing ofprivate corporate of different monetary are the same or not. The results showed that: The enterprises including political relations have higherlong-term loans rates compared with other enterprises, and political relations couldhelp private enterprises to get long-term bank credit support; Compared with centralpolitical relations the local political relations is more useful for private corporate debtfinancing; The ratio of long-term bank borrowings of private enterprises is higher inthe relaxed period of monetary policy, and the ratio of long-term bank borrowings ofprivate enterprises is lower in the period of monetary policy tightening. Therelationship between political relations with the private corporate debt financing is notimplicated by monetary policy. Enterprise with political relations even in the tightmonetary policy environment can get more credit support.This study is collating and summarizing the areas of China’s political relations intheory, and providing a reference for the political relations of the private listedcompanies on debt financing in the monetary policy environment in practice.