Political Connections, Bank Credit And Firm Value

With the progress of the reform and opening up and the market process of our country in recent years, the private economy is booming and it has become the indispensable part of our economy. However, our country is in the economic transition period, inadequate protection of private property rights, the imperfection of the legal system and the backwardness of market process, those were the question that the private economy have to face.Due the government has a say in the state-owned bank credit resource configuration and the approval of the regulated industries, the government will tilt to the state-owned enterprises in the formulation of economic policy-making. However, due to the natural barrier between the government and private economy, making private enterprises suffer the discrimination in bank credit and enter the regulated industries difficulty in the current institutional environment. In order to overcome the institutional constraints to the development of private enterprises, the private enterprises is eager to find an alternative mechanism for the formal system, political connection is one of the alternative mechanism undoubtedly. As one of the alternative mechanism, political connection is helpful to obtain bank credit, government subsidies, tax incentives and so on.This paper takes the private enterprises during 2010 to 2012 for example and researched:(1) the impact of political connections on bank loans; (2) if the effect of the loans has a significant difference in different regions; (3) the impact of the bank loans on firm value; (4) the impact of the political connections on the relationship between bank loans and firm value. The empirical results show that:as one of the alternative mechanism, political connections is helpful to obtain bank credits for private enterprises and the difference is significant in different regions; the loans have a negative impact on firm value and the adverse effect can be improved by political connections, but the improvement is not statistically significant.Taking the political connections, bank loans and firm value into consideration at the same time may the main contribution of the paper, besides, some suggestions were put forward from the aspect of bank, private enterprises and the government and it has a strong practical significance to the reform of China’s banking sector, the development of private enterprises and the policy-making of the government.