Research On Political Connection, Business Transformation Strategy And Transition Performance

With the deepening of China’s industrial structure adjustment, more and morecompanies try to develop new profit growth by industrial transformation. By sortingout the transformation results of listed companies during1998to2011, we found thatalthough the industrial restructuring phenomenon is widespread, the transformationperformance was not ideal.We all know that the success of business transformationdepends on combined effect of various factors, the transformation strategy isundoubtedly one of which is critical. Therefore, this paper conducted in-depth inquiryfor factors affecting the performance of business transformation strategy andtransformation performance.The reason why this paper from the perspective of political association to study,mainly because, China, as the largest economies in transition country, have not yetestablished an effective separation of commercial and government mechanisms, oneof the most important stakeholders transformation enterprises faced is the government.The nature of political connection is the ultimate expression of different institutionalenvironment in enterprises and the behavior of executives. The reason is that Politicalconnection is regarded as a substitute for legal protection, political stability and othermechanisms, it can help businesses get access to regulated industries, preferentialbank loans and other scarce resources which rely on market mechanisms is difficult toobtain. It is also the reasons why political connection phenomena growing popularity.Numerous studies have shown that, political capital of executives will directly affectthe strategic decisions of enterprises. Transformation strategy, the major decisionswhich related to the survival of enterprise will inevitably be affected by corporateexecutives’ political behavior. Therefore, this article take―Political association-Transformation strategy-Transformation Performance‖into a unified theoreticalframework, and select Shanghai and Shenzhen A-share listed companies which havecompleted restructuring during2003-2011as the initial study sample, to explore theinfluence of political association to transformation strategy and transformationperformance. By empirical we concluded that:(1) it is inverted U-shaped correlationbetween political connection and restructuring Performance. In fact, politicalconnection exists threshold, too high or too low political association would beharmful to the performance of enterprise transformation.(2) Compared to thenon-political related businesses, politically associated companies are more inclined to get involved in weakly associated industries by choosing the way of mergers andacquisitions;(3) For the purposes of the transition strategy, mergers will bringshort-term performance but detrimental to the growth of long-term performance,internal nurturing precisely the opposite; In addition, the high degree of industrialrelevance with the restructuring performance is positively correlated;(4)Transformation strategy between political association and transformation performanceis partially mediates. In fact, political association will not only directly affect theperformance of transformation, but also have an impact on performance byinfluencing transformation strategy.Contributions to this report mainly in: Deepen the understanding of theeffectiveness of political connection, and provide a new theoretical explanation for thechoice of business transformation strategic and transition Performance alienation; byestablishing the incentive oversight mechanisms to circumvent the adverse effects ofpolitical association, provide a path to solve the problem of low transitionperformance. This can not only improve the quality of strategic decision making, alsohas a certain reference value for standardize expansion behavior such as businessinvestment, mergers and acquisitions.