A Study On The Effect Of Independent Directors' Political Connection On Bank Credit

In recent years, independent directors with government official background participating in enterprises has become a common phenomenon in the A-share market. Especially since the news about the resignation of three former provincial officials as independent directors of China National Heavy Duty Truck Group was reported in 2013, it is widely focused that retired government officials are appointed as independent directors again. Hiring government officials as independent directors is an important way to get political connection. The potential benefits of independent directors with government official background have become the key point to explore the reasons why these enterprises prefer hiring them. Former studies have proved political connection can increase the bank credit, but independent directors are not involved in the scope of political connection. Therefore, this paper attempts to explore whether political connection established by independent directors has the same effect on bank credit.Using the listed companies from A-share in the period of 2010-2013 as research samples, based on Rent-seeking Theory, Signaling Theory, Social Capital Theory and Advantage of the Weak Coupling Theory, this paper empirically tests the effect of independent directors' political connection on bank credit. The results show that independent directors' political connection is significantly positively correlated with bank credit, senior managers' political connection can strengthen the role, but state-owned enterprises can restrain it as well as the senior managers' moderating role. The results confirm that the independent directors with government official background have the ability to help enterprises get more credit resources, but this could cause more enterprises to focus on broad resource network rather than proper role in the corporate governance structure at the time of hiring independent directors. Moreover, such political connection will also impede fair competition and healthy development for enterprises. At last, this paper proposes some suggestions on how to improve the system of hiring independent directors and how to continue to promote financial market reform.