The Research On The Relationship Between Political Connection And Investment And Financing Of Enterprise

The topic about relationship between enterprise and government has been one of the most focused areas on a public debate and academic research. Enterprise is one of the most active subjects in the economic life, which deeply influence the development of economy and national economy and the people’s livelihood, especially on the condition of globalization inevitably, the tentacles of enterprise cross the national border and even have an important impact on the global economy. The government influences the development of the enterprise through regulation and restriction and makes the enterprise shoulder responsibility that doesn’t belong to the enterprise itself. Frye and Shleifer(1997) think the government plays three roles in transition economies:the invisible-hand model, the helping-hand model and the grabbing-hand model. In the transition economy of China, the international is generally accepted the government as a helping-hand, but it doesn’t mean that there is no a grabbing-hand in our country (Zhou,2003).In the transition economy of China, the formal institution is still not sound, political connections widely exist in our economic life as a supplement of the formal institution. Fisman(2001) first puts forward the concept of political connections about researching the relationship between Indonesia business and Suharto family. Faccio(2006) finds that political connections are particularly common in countries, but it is different from corruption and legal in law. Investment and financing has been an important link to influence the development of enterprise, especially the financial crisis outbreak, the enterprise tries to obtain government resource for supporting the development of enterprise through establishing political connections, but political connections may change the helping-hand into the grabbing-hand and distort the resource allocation efficiency, at the same time, the massive fiscal stimulus of the state has also raised concerns about overinvestment.The paper selects accounting standards change and the financial crisis outbreak in2008as research year. Finally the paper chooses the China’s Manufacturing listed companies in2008-2012, the observed value for research is2404after screening.This article analyses from the theoretical review, the background system analysis, hypothesis, building regression models, empirical analysis and putting countermeasures, and so on. Especially in the context of the financial crisis, this article hopes to draw valid conclusions and recommendations. The article is organized as follows:The chapter I is an introduction section. This section describes the topic related to the background and significance and introduces briefly the earlier research of political connections, the development of theory about investment and financing and the current situations of China’s economic system. Then this section describes the significance of this study and finally concludes with a research content, study framework and possible innovation.The chapter II is the literature review. This section combines the main theme of the study as the following four-part literature review. Firstly this section has combed and defined the political connections and reviewed the situation at home and abroad, then combed the relative theory of political connection and investment and financing, finally discussed the motive about establishing the political connections.The chapter III is the analysis of the relevant institutional background. This section mainly analyzes the theoretical basis as well as the listed companies’ investment and financing in the context of institutional background to pave the way for making assumptions and model selection.The chapter IV is the study design and model selection. The section raises two hypotheses through the front part of the text’s analysis and is subsequently given to illustrate the data resource and data screening. Then the other part makes explanations to explanatory variables, explained variables and control variables and constructs three multiple regression models.The chapter V is the empirical analysis. This section verifies the hypothesis’ significance and reliability in the light of data descriptive statistics and multivariate regression analysis.The chapter VI is the conclusion, policy advice and research limitations. This section summarizes the main conclusions in accordance with the preceding empirical analysis. Meanwhile, this section makes recommendations combined with our nation’s current status and proposes limitations of this study.This article’s conclusions contain:(1) politically connected firms have a significant effect with total bank loans and short-term loans, and politically connected firms have no significant effect with long-time loans.(2) This paper doesn’t find that political connection has a significant impact on debt maturity, which may also be subject to the impact of long-term loans.(3) On the whole, China’s manufacturing enterprises exist extensively the phenomenon of over-investment. Total loans and short-term loans associated with political connection at the1%level are significantly affected on over-investment, but long-term loans are not significant.(4) Long-term loans associated with political connection have a significant positive correlation with under-investment at the1%level. It means long-term loans easily exacerbate under-investment, but short-term loans and total loans are not significant.Innovation of this paper is mainly reflected in the following points:(1) Research sample selection. Most researchers will individually have owned enterprises or private enterprises as the research sample, this article will expand the sample as the listed manufacturing companies in Shanghai and Shenzhen.(2) In this article, the paper selects accounting standards change and the financial crisis outbreak in2008as research year, so the article selects2008-2012in order to ensure consistency of accounting measure and observe political connections in the particular state.(3) Prior scholars mostly research the relationship of political connections and debt financing or political connections and overinvestment, this paper will combine all three, and make the connections associated with debt financing interaction variables as explanatory variables, while the debt financing divided into three kinds of loan-term debt (total lending rate, long-term and short-term lending rate) in order to examine the impact on the over-investment.Affected by the level of research and pens limited, there are still many limitations articles:(1) In the measurement of political connections, this article has CEO (General Manager) whether current or former government officials, deputies or CPPCC members as explanatory variables, but not contain other corporate executives into the scope of the study. However, the other senior executives of enterprises will inevitably have a major impact on investment and financing behavior. And whether it exists political connections depends on the corporate governance module of Guotaian database, but whether there is hidden political connections can’t be measured directly, maybe it’s even more important.(2) In estimating the level of overinvestment, this paper draws on Richardson’s estimation model, which is now extensively used model, but the model doesn’t consider agency conflicts and asymmetric information and other factors so that the model estimate may produce bias.