Empirical Research On Financial Constraints Under The Political Connectionsbackground Of Senior Executives In China Listed Medium And Small Companies

There are lots of researches in China and abroad having demonstrated the ubiquity of political connections of senior executives in companies, as well as impacts on firm value and performance, and conveniences for finance and government subsidies. So, in terms of these listed medium and small companies which coming like bamboo shoots in China, how could political connections of senior executives impart on their financial constrains? Stimulate or ease?Basing on the question above, this article chooses 1799 medium and small companies listed in Shengzhen medium and small stock during the year of 2012 and 2014 as research sample. According to the model of Cash-Cash Flow Sensibility, the article introduces two dummy variables—whether political connections and which style of political connections, and sets up a new model of Cash-Cash Flow Sensibility under political connections of senior executives. Adopting OLS to demonstrate the impact of political connections on financial constrains in listed medium and small companies in China and the discrepancybetween local political connections and center political connections. Then considering in the incomplete capital market in China, the long-term debt is the main method of external finance, and the article introduces the two same variables to the model of long-term debt finance which is usually regarded as the main externally financial method, in order to demonstrate how it influences the long-term debt finance, and whether it is in line with the research outcome of financial constrains.Research indicates that political connections of senior executives can ease financial constrains in listed medium and small companies.1) Overall, there is a negativecorrelation between political connections and financial constrains in listed medium and small companies.2) In terms of the two styles of political connections, both of local and center political connections ease financial constrains, but the impact of center political connections is not apparent. So the impact of local political connections is stronger than center one.3) Furthermore, there is a positive correlation between political connections and long-term debt finance in listed medium and small companies. This is in line with the research outcome regarding with financial constrains.4) Both of local and center political connections stimulate long-term debt finance, but the impact of center political connections is not apparent. So the impact of local political connections is stronger than center one. This is still in line with the research outcome regarding with financial constrains.