The Relationship Between Political Connections And Enterprise Growth From Cash Flow Perspective

Many senior managers of private enterprises are characterized with political association in difference forms,and political association of private enterprises has become an increasingly common phenomenon in the process of economic development.Political connection be treated as a kind of valuable resource,it can help private enterprises get tax breaks,subsidies,trade access and other business resources to create a favorable external environment.Some researchers think political association is a rent-seeking method for government who has right to allocate scarce resources,it would increase policy burden and affect the validity of resource distribution.In the period of China's market-oriented reforms,system background and relationship oriented social structure decide the political association is important for the development of enterprises.In this paper,government subsidy and bank loan are treated as direct cash flow the enterprises gain through political association.This paper aim to research the relationship between political connection and dynamic growth of private enterprise.This paper want to clarity political associations play helping-hands or grabbing-hands in the development of private enterprise.Based on rent-seeking theory and institutional theory and lied in the economic and political system,the author build a political association index of private companies and sets business growth model.Then,use multiple linear regression method testing how the political association associated with business growth of the private enterprises.From the cash flow standpoint,the author use 6700 private listed companies in Shanghai and Shenzhen stock exchanges in 2008-2014 for samples,the author make an empirical test to examine direct impact of political association on the growth of firm and the indirect impact of political association on the dynamic growth of firm through the subsidy and bank loan the enterprise gains.The results indicates that the political association has a significant negative impact on the dynamic growth of firms,and that poorer the institutional environments are,stronger the negative impact is.Further results find that private firms with political connection do get more fiscal subsidies and bank loan than the counterparts.We also find that subsidies and bank loan obtained by firms with political connections are negatively related with dynamic growth of private enterprise.This paper rich the theory of the impact of political connections to the growth of firms,reveals political connections as a method of government intervention,it is harmful to the growth of firms.Take the external cash flows into consideration,we find that subsidy and bank loan are two mediators,political connections has an negative impact on growth if firms through this two mediators partly.The result of this paper provides some different ideas about "political connections boom" in private enterprise in China.