Research For Moderating Effect Of Political Connection On Diversification And Enterprise Performance Under The Institutional Environment

Since the reform and opening up, the private enterprises of the new era play a more and more important role in the process of national economic development. System uncertainty resulted from economic transition make the growing private enterprises take the diversification as a significant strategy to build enterprise’s strength. That is because, on one hand, the private enterprises under economic transition hope to partly reduce the problems caused by the defect of system background through diversification. Under the economic transition condition, the high degree of uncertainty system condition and market environment, different starting points of industry development and "ownership discrimination" make the private enterprises under fierce competition and face much larger risk. Therefore, non state-owned prefers to avoid risk through extension of irrelevant emerging industries. On the other hand, On the other hand, local protectionism results in market entry barriers and market segmentation. So the specialized enterprises are not easy to achieve a certain scale. Expanding business scope and fields through diversification is an effective way for private enterprises to decentralize operational risks and improve enterprise performance.In the process of implementing diversification, there is a demand of resource support and a challenge of facing risks caused by various systems and market uncertainties. The private enterprises accumulate political resource and implement political strategy to effectively reduce the transaction cost brought by the uncertainties and help them get more resource which is significant to the existence and development of enterprises. Therefore, in China’s economic reform environment and social structure dominated by relationship, more and more private entrepreneurs make political participation through various ways with the development of private enterprises to establish a good relation with the government. According to a survey of private entrepreneurs, nearly35%of respondents had a strong desire to become a member of NPC and CPPCC. Some important contents of formulating and implementing political strategies have been included in the enterprise strategy management. Political resources play an irreplaceable role for private enterprises to implement diversification strategy value effect. At the same time, as an important resource, the political relationship is of great significance for the construction of enterprise strategy execution system.Therefore, the influence for the diversified strategic value effect which brought about by political connection of private enterprises will be studied strategically from my essay through the view of resource dependence and environment. Meanwhile, we discussed3issues on the opinion that how to set up the advantaged environment between government and enterprise to successfully implement the diversified strategy of enterprise by the feature of institutional environment under the period of transition economy showed as follow.1.Would the effect of diversified strategy promote or weaken the operational performance of private enterprises?2.Would the political connection improve the diversified strategic performance of private enterprises?3.What is the difference in how private enterprise’s diversified development is influenced when the industry they belong to, the government interference degree, and local financial development maturity is different?The key standard which adopted in my essay for the political correlation of the private enterprises will be measured by the proportion of the board members who possess the political connections in the board of directors. The entropy is selected to measure the diversification degree of the private enterprises. The enterprise performance should judged by the selected annual ROA(return on asset).The institutional environment is estimated by the industry characteristics of the private enterprises,the economic development and the government intervention of the province where the private enterprises registered. Studied that how the political connection of private enterprises would influence the diversified strategic value effect on the basis of controlling the enterprises scale, asset-liability ratio,the proportion of independent directors and the corporation growth.The content frame of this paper is as follow:The first chapter is introduction, which introduces the research background and significance of this paper. Meanwhile, the introduction presents the frame, method and innovation point of the research, and also makes definition of the key concepts. The second chapter organizes and elaborates the related researches of political connection, diversification and system environment. The third chapter proposes six theoretical models with their inner logic and six research hypothesizes after elaborates the theoretical basis of this paper. The fifth chapter expounds the empirical results and analysis. The sixth chapter summarizes the results and related recommendations, and proposes the future research direction.The result of this research shows that:1. The diversification degree of private enterprises is negatively correlated with their performance.2. The political connection of private enterprises has moderating effect on the diversification performance.3. Meanwhile, the completion of the economy system also influences the moderating effect of diversification performance by the political connection.At last, combining the theoretical and empirical analysis results, author gives following recommendations:1. Private enterprises should correctly implement political strategy and develop political resources..2. Private enterprises should develop their main business before diversified to cultivate core competitiveness. Choose proper time to diversified instead of expand blindly. Meanwhile, during the diversification, they should focus on the enhancing of internal integration and elevating the level of management for the sake of control the enterprises and defuse difficulties and risks to guarantee benign (development.Compared to past work, the innovation point of this work is:1. Adding political influence as a adjustment variable when analyzing private enterprise diversification’s effect on enterprise performance.2. Attempting to combine the characteristics of China’s economic transition period. Studying the difference of political influence at different economic transition period..