Reserch On The Influence Of Actual Controller’s Political Relationship On Corporate Financing And Value

In recent years, foreign scholars found that as a feature of company, government background of company executives as well as the company’s diversified operations and ownership structure, had major impact on company’s running. Government has strong regulation on the market in the context of China’s current system, and statistics suggest13%of the company executives are government-backed. Therefore, studying the impact of government-backed company executives on companies in China is of practical significance. How to deal with the relationship with government has presented a new question for private enterprises that have to take it into consideration when making strategic decisions and operating. The establishment and implementation of formal institutions in China concerning private enterprises, such as laws and regulations, are not so good, and there is still a long way to go to establish a perfect market system. In this context, political connection, which could be served as informal institution substituting for laws and regulations, can promote better development of private enterprises, which indicates private enterprises’seeking political identity will become more reasonable and common.Over the past few years, we have seen the emergence of a growing number of researches on the impacts of political connections on private enterprises from the perspectives of financing and tax revenue. The findings show that political connections have bring convenience for companies in the financing and tax preference. Some scholars have studied the impacts of political connections on financial decision-making activities. In this paper, we study from the perspective of political connections of private enterprises’actual controller, and choose private enterprises whose actual controller is individual person and listed in Shanghai and Shenzhen stock market as sample, using data from2006to2011to identify the forces that influence companies’financing and value. Personal information such as actual controller’s political connections are hand-collected from annul reports, prospectus and Internet.This paper is organized as follows. Firstly I theoretically analyze the convenience of financing taken from political connections, and then empirical analysis proves that political connections have significant impacts on companies’ debt financing and corporate value and other aspects. Finally, under the circumstance of China’s current institutional context, I put forward my own insights on these problems.