The Political Connection Impact On R&D Investment And Corporate Value

After the rural economic system reform,which make contract responsibility system asthe main content,China promote state-owned and collective ownership urban enterprisereform.One of the main purpose is to establish enterprises as the main body of independentmarket economy status by implementing the separation of government and enterprises andto enhance the vitality of economic cells and micro-economic efficiency. However，It is notdifficult to see that a growing number of Chinese private entrepreneurs has participated inpolitics obviously and appointment retired government officials as corporate executives oradvisor,what help them to establish closer relations between government and enterprises orpolitical connections.This thesis intends to study the political connections in perspective ofthe impact to R&D and corporate value.As we all know, innovation plays a crucial role for long-term development ofcorporation. This thesis intends to study from the impact to R&D investment, then theimpact to the long-term development and corporate value. This thesis is looking for thecause of political association in private corporation from institutional background usingtheoretical analysis.And this thesis select private listed company in six central provinces inChina (Hubei, Hunan, Jiangxi, Anhui, Henan, Shanxi) as sample. Using data in theirfinancial statements public in2012for regression analysis.The point of this thesis is as follows: Protection of property rights is not enough byChinese law. The legal system in China is inadequate, weak enforcement. So the propertyrights of the private company is not well protected. On the other hand, land resourcesallocation, financial resources allocation and administrative review and approval rights,what plays a crucial role on the enterprise’s development, are hold in the hands of thegovernment. These are the root cause of the political connection seeking by private company.Political connection enhanced the corporation value, but reduced the R&D investmentsignificant in private company simultaneously, which has a negative impact on long-termdevelopment of enterprises. So,once the political connections demands universalizated, itwill bring great erosion to a national micro-economic vitality. Even it will weaken China’scompetitiveness.