A Research On The Effect Of Political Connection On Company’s Performance In Private Listed Firms

Political ties, with a wide variety of ways of establishing, prevail all over theworld, which is basically caused by the diversity of history courses and systemenvironment of different countries. Combining studies at home and abroad, it can befound that political ties have a complicated impact upon companies and they are“double-edge swords” with both positive and negative effects.In the transformational economy of China, a large majority of key economicsectors are controlled by the government and administrative orders from thegovernment play a decisive role in the survival and development of private enterprises.However, people’s congress system with Chinese characteristics and politicalconsultation system only plays a limited and specified role in economic development.The power structure will influence resourses allocation which can be seen in acompany’s performance.This paper will; combing with China’s institional background, conduct a theoryanalysis and empirical test on the performance impact upon private enterprisesexerted by the political ties. The purpose of the above-mentioned acts are to offerfeasible advice to bring to full display the positive effects of the political ties onprivate enterprises performance as well as standardize and improve private market.The present paper will be discussed in terms of the following threeaspects:(1)whether political ties have improved company performance;(2) whethergovernment officials political ties have exerted a more remarkable impact uponcompany performance than representive commissioners;(3)whether differences inmarketization process will influence relationship between political ties and companyperformance.This paper will take private enterprises in Shenzhen and Shanghai A-shares from2008to2010as samples to make empirical analysis.We have obtained the followingfindings:(1)Regardless of types of political ties, the whole political ties haveremarkably improved company’s actual performance;(2)When condidering differenttypes of political ties and using method of dummy variable to evaluate political ties,we found that companies of government officials political ties did better in actualperformance than companies of representive commissioners political ties, and acompany’s performance was not closely related with representive commissionerspolitical ties; likewise, when we used method of assigned variable, we also found that a company’s actual performance was in direct proportion to the tensity of governmentoficials political ties, to be more specific, the stronger the government officialspolitical ties are, the higher a company’s actual performance will be.Furthermore, acompany’s performance has significant relationship with representativecommissioners political ties, which shows that levels of representative commissonerswill signficantly influence a company’s performance;(3)In view of market differences,the slower the marketization process is, the more likely private enterprises will beintervened by government. When studying impact of marketization process uponrelationship between government officials political ties and a company’s actualperformance; we found that the slower the marketization process is， the moreremarkablely government officials political ties will improve a company’s actualperformance.The study of this paper expanded the study of impact of political ties on privatelisted companies, thus offering empirical evidence for the role of political ties in thedevelopment of private listed companies in China.As an informal alternativemechanism in the unsound market of China, political ties promote the sounddevelopment of China’s economy.