| With the rapid rise of the Chinese economy, the private economy has also developed greatly. From1982thel2th Report officially recognize the " self-employed " concept, the Chinese private economy has gone through more than thirty years. In these three decades, private enterprises enhanced the overall strength step by step. The vibrant private economy is an indispensable part of the national economy.The report of private economic development situation of China of2012shows that the number of registered private enterprises of China have registered more than ten million at the end of September of2012and the total reached10,598,000, an increase of12.6%over the previous year; registered capital has reached298,000billion, an increase of21.3%over the previous year; average household registered capital has reached2,813,000yuan, an increase of7.8%over the previous year. Meanwhile, the2012economic data show that the proportion of private economy in GDP has exceeded60percent, exceeding the state economy.The private enterprises provided the community with a large number of employment opportunities and created enormous wealth. The above data shows that the private economy is an important factor in our national economy. However, due to defects in the political system and the financial system, as opposed to the state-owned economy, the private economy has been given unequal treatment. Capital is an important factor which affecting the survival and development of enterprises.Because of the less development of China’s securities market, enterprises listing and financing also subjects to some restrictions, so the bank is the main way of corporate external financing. The scale of a single private enterprise is small,so the state-owned banks are more willing to give loans to state-owned enterprises which have government guaranteed.The difficulty of obtaining loans of private enterprises is much bigger than the state-owned enterprises. In order to ease the difficulties of financing, the private entrepreneurscost time and money to establish an informal system and the "relationships" is the important one. Theory and practice show that "relationship" is a very effective resource. If enterpriseshave a good and strong relationship with government and bank, the enterprises will be able to benefit from them. Due to differences in the ownership with state-owned enterprises, the private enterprises has already been in a disadvantage position in the market.If there is "relationships", then the situation will be able to be effectively mitigated. In these many benefits, the convenience of access to capital is one of themost important ones. Survival and development of enterprises is inseparable from capital,and debt financing is the important and main source of funding. Chinese banks at this stage is still dominanted by state-owned banks,the government which is the ultimate controller of the state-owned banks has a significant impact on the issuance of bank credit.So establishing a good "relationship" with the government could reduce the difficulty of access to finance of private enterprises.Similarly, if a company’s directors or executives who used towork at a bank, then by his knowledge of the bank’s requirements of issuing the credit and facilitate communication to the bank,the private enterprises will be easier to get a loan Thus, private entrepreneurs are keen to hire the ones who have served in government or banks as the company’s directors or executives. They hope that their relationships in the government or the banks will help the enterprises obtain bank loans or other benefits, which is studied in this paper. Therefore, it is necessary to study the two relationships’bank loans effect in empirical.. This study is the first step of this article.With the development of economic, the extent of the bank’s participation in the economy has increased, prompted from the creditor towards to the role of shareholders, or take responsibility as part of shareholders. First, banks can provide funds as ways to influence business management.Furthermore, when companies is in crisis, banks can provide emergency credit support to help them overcome adversity, and to reach a reasonable capital structure. Because of the scarcity of funds, bank can choose companies to give loans according to their own criteria. Because of this, banks can provide funding and assistance as a bargaining chip, asking to participate in business management, including setting terms of the loan participation, improving enterprise performance evaluation system and the corporate presence, so as to monitor and improve the level of corporate governance. Secondly, banks pay more attention to business activities than other stakeholders as the major creditor. The performance of the enterprises bank directly determines the timely receipt of principal and interest. Once the enterprises crisis, and in some cases,the bank’s losses may exceed to shareholders.Because shareholders’liability is limited to their contributions, and the shareholders can reduce their losses by trading shares.But the bank canrecover the loan in advance only when meeting with certain conditions. Finally, for the purpose of profit maximization, banks are willing to participate in corporate governance. Banks participation in governance can maintain stable relations between banks and companies,and also can improve private enterprises’ performance. In addition, banks have a better understanding ofenterprises.Banks are easy to know relevant information paying costs relatively low.And banks can givetheir own information resources, organizational resources and capital resources to the enterprise resource, to help enterprises to improve operational efficiency. Thus, in theory, to some extent, bank loans can improve corporate governance an reduce the company’s management agency costs, but the results still need to be tested empirically. This study is the second step of this article."Relationship" lending exists a certain value to enterprises, especially private enterprises, to some extent, making up the deficiencies in the system. Enterprises obtain loans to some extent may improve economic efficiency through political connections. Because of the existence of asymmetric information when bank issuing credit, banks do not understand the real situation of enterprises, and by this time the bank will assess the other conditions to ensure a reasonable risk. The private enterprises political ties could mean private enterprises with good reputation, so the existence of political ties of private enterprise could be considered as a high level of corporate governance and good prospects for development, and therefore get more bank credit support. Meanwhile, private companies which under the supervision of banks and other creditors are more likely to operate efficiently, thereby improving corporate governance. However, there are some scholars believe that the fundamental purpose of companies establishing political ties is to rent-seeking to the government officials who have the power of allocating resources, and pay the cost of bribery and other forms which is damage to the interests of shareholders, especially minority shareholders, which will undoubtedly increase the listing the company’s agency costs. Thus political ties through bank loans may decrease agency costs orincrease agency costs. Similarly, executives or directors of banking background can bring a lot of expertise in the field of corporate debt financing and provide guidance and counseling of financing aspects, which improves the ability to obtain bank loans from the perspective of the enterprise itself. Private enterprises under the supervision of banks and other creditors, may promote enterprise economic efficiency, thereby improving corporate governance. However, similar to the political ties, the relationship between banks on the one hand can help companies get more loans and improve corporate governance, on the other hand there are also possiblility that private listed companies obtaining bank loans through bribery. This will weaken the role of external bank debt governance, thereby increase the management of agency costs. Therefore, the relationship between banks through bank loans may decrease agency costs or increase agency costs. These two issues constitute the final step in the content of this paper, that examine the impact of political ties and relationship between banks of management agency costs.In this paper, we connect2007-2012China’s private listed companies in Shanghai and Shenzhen as the research object, hand-collected data of political ties and bank relations.First we consider the relationship between banks and political ties and bank loans for private listed companies, then further analyse the impact of bank loans to the company’s management agency costs. Finally, based on the second step of the study, adding cross-variable "relationship " and bank loans, study whether political affiliation or relationship between banks and enterprises increase or decrease the company’s agency costs. The results show that:the political ties and relationship between banks and enterprises,as two important "relationships", can have a significant positive impact on the rate of bank loans of listed private companies, this conclusion either for short-term bank loans rate, long-term loans rate and the total loans rates are always stable; enterprise " relationship " has brought more bank loans, bank loans can significantly reducethe agency costs of private listed companies, and long-term bank loans have played a more significant role in governance than short-term loans. Further studies showed that political connections through long-term bank loans increased the agency costs of private listed companies, this conclusion has some robustness, we support that is linked to rent-seeking theory of political connections do not support the efficiency hypothesis in this article; relationship between banks and enterprise also increase the agency costs of private listed companies through bank loans to some extent, but the results are not steady, indicating that the damageon corporate governance caused by relationship between banks and enterprises is not obvious, So on the purpose of obtaining bank loans only, the relationship between banks and enterprises is ainformal system which has less damage to corporate governance than political connections. |
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