Study On How Political Connection Relaxes Private Enterprises’ Financing Constraints

Empirica l research suggests that, private enterprises’ politica l connection rela xesthe ir financ ing constraints, but very few research stud ies the interna l mec hanis mbetween the m. This paper studies how private enterprises’ po litical connection re laxesthe ir financ ing constra ints both theoretica lly and e mpirica lly. After reading andsystematica lly sorting out domestic and fore ign stud ies，we ana lyse systematica lly andbuild a game theory model between enterprises and financ ia l institutions. Thesesuggest that po litical connectio n reduces the informatio n asymmetry between privateenterprises and financ ia l institutions；so that politica l connectio n can rela x privateenterprises’ financ ing constra ints. At the same time，we a lso analyse syste maticallyandwe also build a ga me theory model between private enterprises and governme ntoffic ia ls fro m the perspective of rent-seeking. These suggest that，politica l connectionincreases the possibility of rent-seeking activities between the two partners throughreduc ing private enterprises’ rent-seeking cost and government offic ials’ rent-seekingrisks；so that，political connection can relax private enterprises’ financ ing constraintsthrough rent-seeking mec hanis m.However，whether politica l connectio n reduces private enterprises’ fina nc ialconstra ints by reduc ing information asymmetry mechanis m or by rent-seekingmecha nis m. We design an e mp irical study to test the theoretical res ults；that is tocompare the influe nce of politica l connection on polluting ind ustries’ fina nc ingconstra ints and un-polluting industries’ financ ing constra ints. In the emp irical stud y，we take listed private enterprises on A stock market during2004-2011as the samp le，and the study is based on cash-cash flow sens itivity model. It suggests that，ournation’s private enterprises suffer serious financ ing constra ints on total，and pollutingindustries’ enterprises suffer more compared to the un-polluting ind ustries’enterprises. But in politica l connection group or non-market resource allocation areagroup, the financ ing constraints of polluting and un-po lluting industries’ enterpriseshave no obvious difference； in market resource allocatio n area without politica lconnectio n group， polluting industries’ enterprises suffer much more fina nc ingconstra ints than un-polluting ind ustries’ enterprises. The emp irical research wellproves that，politica l connectio n reduces private enterprises’ financ ing constraintsthrough rent-seeking mec hanis m.So that，o ur country should pay more attentio n to the supervis io n towards local governme nt offic ia ls， especia lly the non-market allocation area and privateenterprises with po litical connection. Thus the ne gative effects on our nation’sresource allocation can be reduced which produced by rent-seeking activities. At thesame time，our nation sho uld provide a sounder formal property safe guard syste m tosolve the root proble m of rela xing the private enterprises’ financ ing constra ints.