The Effects Of Political Connection On China’s Privately Listed Enterprises Value

Today China`s market economy develops quickly, however compared to thestate-owned enterprises that the private enterprises still have so much disadvantages.Political connection as a complement to the social capital, would it help the privateenterprises reduce the disadvantages and get a better development, do this enterpriseswould pay any cost for get political connection?In this paper, I explore the relationship between political connection and firm value ofprivately listed enterprises. First, I analysis whether political connection can make agencyproblems to this enterprises, with my research I find that political connected privatelylisted enterprises have higher administrative expenses ratios, but don`t have loweroperational efficiency. By researching impact to the financing constraints and the taxburden with political connection, I find it really reduce the financing constraints inprivately listed enterprises, it will help this enterprises to get a better capital structure.Before2008, political connection can significantly reduce the tax burden in privatelylisted enterprises, but after2008is no. Before, these enterprises had lower effectiveincome tax rates. After researching the relationship between political connection and firmvalue of privately listed enterprises, I find the political connection has a great contributesignificantly to firm value, but the magnitude is lower because the agency costs haveincrease in this enterprises. Political connection still will increase the firm value after Icontrol the capital structure, tax burden, and agency costs,there must be some other waythat political connection can impact the firm value.This article is not only concerned about the positive side that the political connectionhad made to firm value, but also seek the cost that the enterprises should pay. Bycomprehensive comparison of the cost and the benefits then decide the ultimate impact toprivately listed enterprises. All research reveal the current inequitable conduct in theoperation of China’s market economy, the behavior form political connected privately enterprises had undermine the fairness of market. The empirical research pass robustnesstest, the result has reference value and the actual significance.