Financial Constraints,Political Connections And Corporate R&D Investment

Corporation innovation is the driving force of China’s economic growth and corporation R&D investment is a key resource for corporation innovation.However,the problem of under-investment of R&D in Chinese corporation is still wide-spread.Due to the uncertainty of earnings caused by the inherent high risk of R&D investment and the serious information asymmetry,it is difficult for corporations to obtain effective R&D investment from external financing channels.Therefore,Chinese corporation innovation may be more subject to financing constraints.Meanwhile,through establishing political connections with the government,more and more corporations hope that will obtaining financing sources and overcoming the financing constraints.The corporations listed in SME board is mostly private-owned enterprises,which own small-scale assets and poor transparency of information,lacking of historical credit records.These corporations are mainly high-tech enterprises,whose R&D investment mainly concentrate on human capital and intangible assets.The lack of financing guarantee makes the R&D investment face more severe financing constraints.This paper includes five chapters.Chapter 1 is an overall introduction and introduces the research background and research significance,literature review,research content and research framework,research methods and innovations.The literature review includes three aspects of domestic and foreign literature: the research on the influencing factors of R&D investment,political association and financing constraints.Chapter 2 is conceptual definition and theoretical basis.Chapter 3 is hypotheses and research design.Based on the analysis of information asymmetry theory,signaling theory and agency cost theory,we develop the hypotheses and explains the sample selection,the definition of variables and the model construction.Chapter 4 is empirical analysis,including descriptive statistics,correlation analysis,multiple regression analysis and robustness test.Chapter 5 is the conclusion,policy suggestion,limitations and future research directions.Based on data of China’s high-tech listed corporations of SME board from 2011 to 2015,we study the impact of financing constraints on the R&D investment and the effect of thepolitical connections on the relationship.We find that:(1)the relationship between the financing constraints and the R&D investment is significantly negative;(2)when the company establishes political connections with the government,the relation is less significant;(3)Relative to the equity financing constraints,the political connections has a stronger regulatory effect on the relationship between debt financing constraints and corporation R&D investment;(4)further,we classify the political connections,the higher the level of company political connections,the stronger the mitigation effect of financing constraints on the R&D investment.This paper provides new empirical data for the micro-mechanism of the relationship between financing constraints,political connections and R&D investment,which shows that the informal mechanism still plays an important role in Chinese capital market.The innovation of this paper has the following two points: First,it expands the research of corporation R&D investment.The previous research on R&D investment in Chinese enterprises mainly focused on corporation characteristics,corporation governance,executive characteristics and external environment.They paid less attention to the influence of political connections on the relationship between financing constraints and corporation R&D investment,and rarely involved the high-tech corporations listed in small and medium-sized enterprises board.Second,it enriches the research perspective of political connections.From the point of view of hypothesis,this paper analyzes the influence of political connection on financing constraints and corporation R&D investment from two perspectives: resource effect and reputation effect.Further,this paper analyzes the role of political association at different levels by classification of political associations.Through the subdivision of financing constraints,it examines the alleviating effects of political associations on different types of financing constraints.