A Study On The Relationship Between Political Connection、 Diversification And Enterprise Value

In the process of China’s economic transformation, while the instiution and thelaw are imperfect, then political connection plays a very important role to rotection ofproperty rights of enterprises, industry access, financing. Especially for China’sprivate enterprises, due to the long planned economic, they had suffered the injusticein many respects when compared to the state-owned enterprises, because of china is intransfering from a planned economy to socialist market economy, the government stillplays a major role in allocation of resources, so private enterprises need to establishgood communication with government to ensure the stable development. Especially tothe manufacturing private enterprises, which are living in a higher degree of marketarea, and in recent years more and more manufacturing companies want to enter theregulated industries through the political resources, in order to get rid of the incentivecompetition and to pursuit higher industry profits.Based on the existing literature, according to backgroud of Chinese TransitionalEconomy, in this paper we defied the diversification as the diversified investment inregulated industries and use the penetration in regulated industries to measure thedegree of diversificaion.Though this angle to analyse the influence mechanismbetween policial connections and the value of companies. In this paper we used the131A-share listed manufacturing private companies of Zhejiang as samples. Anddivide the political connection into three aspect: deputies, former government officialsand the member of industry associations to reflect the companys’ political connections.Meanwhile we aimed to38enterprises which had entered regulated industries, builtthe regression model to analyse the relationship between political connections、diversification and companys’ value, and verified the mediating effect of regulatedindustries penetration.Through the analysis, we get the following conclutions:(1)Political connection can promote the penetration in regulated industries.(2)Political connection can improve the value of enterprises.(3)Regulated industries penetration has mediating effect between politicalconnection and enterprise value.