Political Connection And Diversification Among China's Listed Companies

Due to China' s reforming economic background,government plays extremely essential role in business external environment.Network between government and business matters.The term "Political connection" developed to describe this kind of network.Political connection could thus benefit business who want to take diversification strategy by providing necessary resources,that controlled by government in China context.Recent studies give attention to how political connection relates to business performance,while few discuss the relationship between political connection and diversification.In addition,managerial ownership could affect the above relationship given top manager's key role in making decision.Marketization could also affect the above relationship by showing the role of free market.Therefore,my study focus on how managerial ownership and marketization affect the relationship between political connection and diversification from the point of view of corporate governance and institutional environment.Based on agency theory and institution theory,this study add two variables,managerial ownership and marketization,as moderators to test the moderating effect on the main effect.We selected 940 listed companies from China stock market as our study samples,and used samples for testing hypothesis.Three results tested:(1)the relationship between political connect and diversification is significant positive correlation;(2)significantly positive moderating effect of managerial ownership is tested between political connect and diversification;(3)significantly negative moderating effect of marketization is tested between political connect and diversification.In the end,with combination of hypothesis and its tested results,this study has some practical implications for manager:importance of political connection could not be emphasized more,a well-designed incentive mechanism for politic-connected managers would control their intension for diversification,and a suitable degree of marketization for politic-connected managers would prevent their access to overly acquire resources for diversification.