Political Connection、Strategy Choice、Institutional Environment And Firm Performance

Under the background of economic transformation in China, Politicalconnections become a universal phenomena in China. Especially in recent years,entrepreneurs are positive for political connections, such as NPC members or CPPCCmembers(Chen et al,2005), hire someone who has government background, orgovernment officials set up enterprise. However, in academia, political connection isfar from perfect, and many researches need to be done. About the relationshipbetween political connections and enterprise performance, conforming conclusion hasnot obtained. Existing research has not place political connection in Chineseinstitutional environment. Therefore, related issues need to be further studied.This paper combines the theoretical analysis methods and empirical analysismethods, using312samples in Shanghai Stock Exchange and Shenzhen Stock Exchange during2010-2011, to discuss the relationship between political connection and firmperformance. Firstly, this paper makes an empirical study of the relationship betweenpolitical connections and firm performance. The results show that political connections maybe helpful for promoting sales growth rate and the growth rate of net profit, and it ispositively related with return on assets, but ti is not significant in statistics. Secondly,based on the logical analysis framework of "Resources-Strategy-Performance",focusing on the diversification strategy and the cost leading strategy mediating effecton the relationship between political connections and business performance, Theempirical results show that, the political relationships through diversification strategyto enhance the mediating effect of sales growth rate is confirmed, but politicalassociation by low cost strategy to improve the growth rate of sales intermediaryeffect has not been confirmed; political connections through the diversificationstrategy to improve the intermediary role of net profit growth rate has not beenconfirmed, political connection cost leading strategy through the intermediary role ofindirect to enhance the growth rate of net profit was confirmed. Finally, this paperdiscusses the institutional environment in the regulatory effect of political connectionsand business performance. The results show that, the more serious in low degree ofmarketization, government intervention and the legal environment of poor areas, themore improvement effects obvious. Enhancing the strength of political connection is helpful for improving the operation efficiency. In the area of poor institutionalenvironment, seeking for political connection is a good choice.This paper not only deeply extends the theoretical study on political connection,but also provides valuable empirical evidences for the debates on political connection.The market system is not perfect in china, despite political connection as analternative mechanism is helpful to improve the business performance, However, topromote the development of the market economy system, improve the level of rule oflaw and strengthen the protection of the property rights of private enterprises, thegovernment set up a more perfect system environment for private enterprises, as to thedevelopment of private enterprise and the economic development of the country, is along way.