Research On The Mechanism Of The Influence Of Political Connection On Corporate Over Investment

At present,private enterprises are subject to the restrictions of the various resources.Private enterprises make efforts to get everything that is useful to them,including political connection resources.Due to the special environment of the economy in China,the government still holds a lot of key resources.Private enterprises hope to improve access to resources through establish good relationship with the government or hire executive with political background.On the other hand,many private enterprises in our country have excessive investment behavior.They do not use hard-earned resources to invest effectively.Then we have to ask whether the political connection resource of the private enterprises is the cause of excessive investment?If so,what are the ways to improve the probability of the private enterprise's over investment behavior?Two conditions are required for the production of over investment behavior.On the one hand,managers need to have strong investment motivation,and overconfident managers often underestimate the investment risk and overestimate their ability to invest,so they tend to higher than average in terms of the scale and times.And they may even believe they can turn the tide in negative NPV projects.So irrational managers may have excessive investment behavior.On the other hand,excessive investment behavior requires sufficient financial support.If there is no access to adequate funding,business managers can not invest.But because the period of equity financing is long,loan financing has become an important way to get money for private enterprises in China.Therefore,this paper introduces two intermediary variables,external credit financing and internal managers over confidence,to answer the above questions.This paper puts forward that by improving the ability of enterprises to obtain credit financing,strengthen the management of the excessive confidence,improve the management of investment motivation,political association makes the probability of excessive investment behavior greatly improved.Firstly,this paper reviews the studies of domestic and foreign scholars.And then analyzes how the political connection cause excessive investment through managers over confidence and credit financing.This paper uses 2011-2013 data related to the listed private companies as the study sample,and develops the related model,The conclusions are drawn as follows:(1)enterprises who have political association is more likely to produce excessive investment,political association owned by the enterprise improves the probability of excessive investment;(2)political connection enterprises are more likely to get the credit financing.And political association were positively correlated with the credit financing;(3)managers are more likely to be over confident in politically connected enterprises.Political connections as manager's personal resources strengthen their psychological status,"better than average";4)enterprises with the large amount of credit financing are more likely to have excessive investment behavior.The greater the amount of credit financing,the more able to seize the investment opportunities;(5)over confident managers is more likely to have excessive investment behavior.Overconfidence managers are more likely to overestimate their investment capacity and to underestimate the potential investment risk,and they even invested in projects which is not profitable generally;(6)credit financing plays a mediating role between political connections and excessive investment;(7)managers overconfidence plays a mediating role between political connections and excessive investment.Finally,this paper put forward the following suggestions:(1)the real implementation of separating policy,and accelerate the transformation of government functions.China's government should speed up the pace to change the orientation in the market.Our government should make sure that enterprises are dominant in the market,improve enterprise's autonomy in production and operation,and reduce the dependence on the government's resources.(2)Establish and improve the company's internal governance mechanism,and inhibit the manager with over confident behavior.First,use scientific standard to hire managers.Then Modern Corporation governance system should be established to restrict manager's power reasonably.In the end,the managers of political connection resources should also improve their occupation accomplishment and professional ethics.(3)Establish a sound credit approval mechanism,and strengthen the debt governance effect.The results show that credit financing will not restrain the excessive investment behavior of the company,but increase the probability of excessive investment.Therefore,to have,banks still need to monitor the political connection enterprises in the use of funds,repayment ability,credit rating regulation,and to prevent enterprises to invest projects which are not profitable generally.