Political Connection,Entrenched Effect And Executives Turnover

With the economic development of China’s private enterprises, private entrepreneurs play an important role not only in the economic sphere, but also play an increasingly greater influence in the social and political sphere. However, in China, implementation of the legal system exist excessive human factors, and even the government is above the law, resulting in low efficiency of law enforcement. Government allocation of resources also have the same characteristics, a close relationship with the government of private enterprise can get more resources and business opportunities. Government action’s arbitrariness and randomness is ubiquitous. But there are differences still to a considerable extent based on the distance of affinities. Therefore, in this context of Chinese culture and institutions, private enterprises and the special relationship between the government and its officials, have a very important significance. Meanwhile, the characteristics of Chinese transition economies make the political strategies of private enterprises a very important position. Economic transition to private enterprise has brought a lot of uncertainty, although these uncertainties as to promote market-oriented reforms and gradually reduced, the uncertainties brought by the administration still exists. These conditions make the executor’s freedom adjudication executor relatively high, it is for government officials and private companies to provide space operations. Therefore, for private enterprises, to take some strategies to address the relationship between politics and government is crucial for the survival and development of enterprises. Accordingly, the current research literature on political association basically are related to the study of a variety of political influence on the development of enterprises from their own point of view, but they ignore two important issues: First, the existing research on the potential role of the political relevance of corporate governance arrangements have not paid enough attention; Second, executives of all shareholders as an agent, have their own interests function, for selfish reasons, the economic behavior of executives may deviate from the goal of maximizing shareholder interests, political relations are established to seek benefits for itself. However, the existing literature on this representation is not deep enough. In this paper, on the basis of system combing the relevant research results at home and abroad, combine with our institutional background, use of relevant basic theory of sociology and economics, In the research framework to explore the value of political association, Through the analysis of the political connections of executives to cause the influence of mismanagement and was forced to leave, as well as continue to serve political connections of executives can help the company escape trouble.Interpersonal relationships are looked on as a critical resource based on social capital theory, and benefit can be gained by investing in it. By forming a political connection with government, private enterprises invest in this resource business and government to establish a political association can be seen as the investment of this with the aim to obtain favorable terms of policy and governance. For China’s current institutional environment, executives of government-backed companies are very valuable resource that can facilitate economic activities of government regulation and derive benefits. At the present stage, our government to the economic activities such as resource allocation, enterprise management intervention is still more, This unique capital for the company’s executives undoubtedly provide more opportunities for development, can reduce the company’s financing costs, expand the company’s financing, get access to government and other direct assistance, Thus enhance corporate value. However, when the management leadership authority or position is threatened, their own political resources is likely to become entrenched in the capital, resulting effect entrenched management. Executive’s entrenched effect will affect the company’s internal governance mechanisms through selection, monitoring and management of disciplinary action, reduce the sensitivity of executive changes and corporate performance, and affect the healthy and orderly development of the market manager.Based on the executive changes as a research starting point, from the perspective of corporate governance efficiency, this paper make the economic consequences of political association a new interpretation. This article executes an empirical analysis from year 2006 to year 2013 of 3667 private listed company executives to change. By theoretical analysis and empirical test, below conclusions is derived:(1) Executive’s political connections of private enterprises are more closely, the constructing of entrenched effect will weaken his departure- performance sensitivity. In other words, the political resources of executives have become the construction of the effect of the capital, weaken the corporate governance for executive supervision and constraint mechanism;(2) The company’s performance in the replacement of executives did not significantly increase; and remain executives’ political relations are more closely, the magnitude of the company’s future performance improvement is larger. These results again show that building the entrenched effect of executives can become a kind of protection mechanism and make its impunity, and intensify the government intervention of private enterprise, produce certain effect to corporate governance efficiency.The results described in this paper, China’s private enterprises to hire executives with political background is not because the real purpose of their business management skills, more fancy irreplaceable social resources they have. Based on this understanding, we propose the following policy recommendations:(1) To improve on the manager’s incentive and restraint mechanisms, government must complete the appropriate legal framework, and further standardize the internal and external market manager;(2) Government must establish effective control mechanisms to standardize the behavior of government intervention. This study to enhance political connections, entrenched effect and executive changes related understanding and awareness of the problem has certain significance, this study has also developed corporate governance and private enterprise to provide a theoretical basis for the government’s economic policies.