A Study On Relationship Of Political Association And Diversified Operation

The economic system of China began to shift from planned economy to market economy since the reform and open up policy was published. At the same time, the function of our government in the economy has also gradually changed. Nowadays, under the relationship-oriented social background, the relationship between government and companies has gained more and more attentions. The past research and practice have proved that the non-market-based system is inefficient in allocation of resources, which will lead to unfairness distribution. Therefore, companies tend to build political association with the government in order to avoid risks and obtain more resources under the threats of instability economic system environment. The existence of political association can establish an interaction bridge between government and companies, which makes companies capable of developing through getting more political resources. At the same time, the government can also influence companies’ business model through various ways. Nowadays, political association phenomenon is quite common in China. Then, will political association influence local state-owned listed companies’ diversified operation? Which type of diversified operation will local state-owned listed companies prefer to take? This paper attempts to find answers to these questions by doing research.After selecting local state-owned listed companies as research object, this paper uses theoretical analysis combined with empirical analysis method to study the relationship between political association and diversified operation. This paper chooses companies in Shanghai Stock Exchange and Shenzhen Stock Exchange Main Board Listing from 2010 to 2013 to do empirical analysis. Here comes the conclusions.(1)Political association degree influences the diversified operation degree of local state-owned listed companies. Since the economic management power has been transferred to the local authority from center, the local governments have relatively autonomous rights of economic decision-making. Good economic growth performance of local officials in office can significantly increase the possibility of their promotion and allow them to be reelected. High-quality companies’ diversified operation is one of the most rapid and effective way to promote local economy increasing, and the local governments will also give priority consideration to it. The empirical result shows that political association degree of local state-owned listed companies and diversified operation degree has a significant positive correlation. Namely, political association degree will significantly affect the local state-owned listed companies’ diversified operations, which confirms the conclusions of the theoretical analysis.(2)Political association degree has a relationship with diversified operation types in local state-owned listed companies. Under our political system and market mechanism, economic objectives and political performance index which local governments have to bear will become the important factors which affect diversified operation. Local state-owned listed companies which subjected to the above factors will make their business objectives appear to be more multiplicity, or were forced to enter the industry which is unrelated to their main business areas. The empirical results show that political association degree of local state-owned listed companies has a significant positive correlation with unrelated diversified operation degree, and a significant negative correlation with related diversified operation degree, which means that local state-owned listed companies affected by political association lead to a general phenomenon of diversified operation, and the local state-owned listed companies with a high degree of political association prefer unrelated diversified operation.The main contribution of this paper is:(1) Getting through the literature review we can find that most of the domestic scholars tend to research the relationship between political association degree and diversified operation degree for the special group of private companies. Few scholars have paid attention to the group of local state-owned listed companies. As an important part of the state-owned listed companies, local state-owned listed companies play an important role in the process of local resource allocation. Therefore, taking local state-owned listed companies as the research object has certain significance.(2) In the prior study, the relevant study that based on the impact of political association degree to the type of diversified operation is insufficient. This paper studies the relationship between political association and diversified operation, which is helpful for companies to choose the right type of diversified operation and build political association to give reasonable proposals.This paper consists of five chapters. Chapter One mainly covers the research purposes and significance, research ideas and methods and outline. Chapter Two is literature review, gathering different academic perspectives at home and abroad to review. Chapter Three is theoretical analysis of concepts, types, motivations and advantages and disadvantages of diversified operation and concepts, motivations of political association and institutional basis created by political association. Chapter Four is empirical analysis, which deeply analyses the relationship between political association and diversified operation of local state-owned listed companies, and puts forward theoretical hypothesis, chooses reasonable samples and designs variables to make empirical test on the influence of political association of local state-owned listed companies on the degree and type of diversified operation by building multiple linear regression models, and then uses the empirical results to make descriptive statistics and correlation analysis. Chapter Five is research conclusions and proposals, conclusions drawn in this article are combined with the results of empirical analysis, so does relevant policy recommendations and the shortages of the paper.