The Strength And Types Of Political Connections And Over-investment

From the macro perspective, although China now is in the period of economictransition, many regions or industries are still in a rapid increase of social wealth andblind pursuit of GDP growth, and “investment overheating” has become a commonphenomenon in China. Without any doubt, the continuing expansion of investmentplays a very important role in stimulating economic growth. However, a largeamount of inefficient investment behaviors resulted, especially the over-investment.From the micro perspective, ownership structure, corporate governance, financialconstraints and other factors have different degrees of impact on over-investment.However, for the over-investment behavior of Chinese enterprises, only from theabove points of view to consider is not enough. The external institutionalenvironment also has a great influence on the behavior of enterprises. As the linkbetween enterprises and government, political connections may produce positive andnegative influences on enterprises. On the one hand, political connections is acommon form of enterprise rent-seeking, bring many benefits to enterprises, act asthe “supporting hand”; on the other hand, due to maintaining political connections,the enterprises have to pay the corresponding costs and even a certain price, politicalconnections may also become an important means of government intervention, act asthe "grabbing hand", bring some harmful effects, such as over-investment. So whatkind of impact political connections would exactly make on over-investment?Different degree of political connections will make what kind of different impact?What kind of political connections will make greater influence on over-investment?This paper focuses on the correlation between political connections andover-investment, to explore the economic consequences of political connections andthe influencing factors of over-investment and from overall impact, different degreesand types analyses the impact of political connections on over-investment.This paper mainly uses normative analysis and empirical study, the2010-2012China A shares as a sample of private listed corporation, focusing on the relationshipbetween political connections and over-investment. Firstly, based on the relatedtheories, summarizes and analyzes the domestic and foreign scholars on politicalconnections and over-investment research. On this basis, the paper carries on thepolitical connections, over-investment and correlation analysis. Secondly, does the descriptive statistical analysis, correlation test and multiple regression analysis to testthe influence of political connections on over-investment empirically. In order toensure the reliability of the conclusion of the study, this paper conducts a stabilitytest. The empirical study includes four aspects: First, analysis the influence ofpolitical connections on over-investment in general; second, analysis the effects ofpolitical connections strength on over-investment; Third, comparative analysis ofgovernment officials and representatives of political connections on over-investment;Fourth, further study NPC and CPPCC political connections on over-investment.Through empirical research, the conclusions of this study are as follows: Theresults show that compared to the non-political connections of private enterprises, theover-investment of political connections of private enterprises is more serious. Thedegree of political connections does not significantly affect the degree ofover-investment of private enterprises. Different types of political connections havedifferent influence on over-investment. Compared to the political connections ofcommittee member, the political connections of government officials have a moresignificant influence on the investment behavior of private enterprises. Further more,the political connections of NPC deputies have a higher over-investment degree thanthe political connections of CPPCC members.