Research On The Relationship Between Political Connections,Credit Financing And Over-investment

In the global scope,the establishment of political connection has become a very common phenomenon,include the listed companies in our country,Our country is in economic transition period at the present,the government still holds the all kinds of key resources which are essential for private-owned companies,private-owned companies are trying to establish connection with the government in order to obtain the scarce resources.As this phenomenon is more common, many scholars have studied the influence of political connections on the enterprise.Combined with the background,in the environment of China’s market economic development,on the one hand,political connection enables enterprises to obtain more resources and competitive advantages, reduce business risks companies face in the incomplete market, but at the same time,in order to maintain its competitive advantage and to get more resources,business managers tend to make inefficient over-investment which not only caused the waste of enterprise resources, also make the enterprise value suffered serious damage, we should pay attention to this phenomenon.Currently,some scholars have explored the relationship between political connections with over-investment,but the middle action mechanism in the relationship has yet to be further explored,and previous studies mostly focus on the State-owned enterprises, but not private owned enterprises. However, the living environment and investment conditions of the private owned enterprises should be taken seriously fairly because they are important parts of our domestic economics. Therefore, this paper use2011-2013data related to the listed private companies for the study sample,determine the over-investment level of each sample through the use of Richardson’s investment expectations model,collet the executives’s BackgroundInformation by manually,combined with the special background of economic transition in China,established the analysis framework of "corporate political connection--credit financing-over-investment",exploring the relationship between the political connection and over-investment as well as the relationship between the transmission mechanism through the combination of theoretical analysis and empirical analysis method.The conclusions of this research are as follows:Political connection has a positive impact on the credit financing;the political association of private enterprises has a positive impact on the over-investment,which means enterprise’s political connection increases the problem of over-investment.Further inspection shows that the impact of political connection on over-investment is achieved through credit financing.Innovation and contribution of this paper is:this paper extends the analytic framework of the study on the relationship between enterprise’s political connection and over-investment. Most previous studies only explained the relationship between the enterprise’s political connection and over-investment, but rarely studied whether there are factors play a role in this relationship. This paper extended this research by establishing the analytic framework of "enterprise’s politica connectionl-credit financing-over-investment", thus enrich the study of this area.