Political Connections And Corporate Risk-taking

Since the reform and opening-up,private enterprises have grown rapidly and been a major part of our national economy,hasing made a remarkable contribution to the growth of domestic GDP,employment,tax payment and so on.Although the development of private sector has become an indisputable fact,in the special period of economic transformation private enterprises still face many obstacles.Political connection is a positive response to the environment in which the private sector deals with bad institutions,and it plays a very important role in the sustainable development of the enterprise.Risk-taking is an important activity in enterprises,reflecting the enterprises risk preference in the process of investment decision-making,and also the cost that enterprises pay for pursuing high yield or strategic competition.Risk-taking is very important for optimizing enterprise resource allocation,promoting enterprise value and improving market competitiveness.For private enterprises pursuing economic benefits,they tend to have strong risk preference and more investment in high-risk projects such as innovative research.However,under the background of economy transition,the severe financing difficulties of private enterprises have led to the strong financing constraints in the investment decisions of enterprises,and had to give up part of the risk investment projects.However,as an important resource for the development of private enterprises,political connection can help private enterprises to get rid of financing dilemma,and thus affect the risk bearing level of enterprises.This paper tests whether political connection affects private enterprises risk-taking using data of listed private enterprises in ShangHai and ShenZhen A-shares from 2005-2015 as sample.Then analyzes the mechanism of political connection to corporate risk-taking.Finally,the influence of the improvement of external financial environment on the relationship between political connection and risk-taking is discussed.The empirical results show that the political connection can enhance the corporate financing ability to alleviate its financing constraints,as well as promote private enterprise risk-taking level.Bank loans have a hidden effect on the relationship between political connection and corporate risk-taking,while trade credit financing plays a mediation effect in the relationship.At the same time,with the improvement of financial development,the influence of political connection on corporate risk-taking is weakened.Based on the background of China's transition economic system,this article from a new perspective to investigate the relationship of political connection on the investment of the private sector,and provides empirical evidence for the informal institution plays an alternative mechanisms affecting enterprise development under the formal system.At the same time,based on the theory of resource dependence,this paper verifies the mechanism that political connection impacts on corporate risk-taking,and provides a new explanation for the influence of political connection on investment decisions of private enterprises,thus enriching the literature research in the field of risk-taking.The research indicates that the government should strive to supply the fair market environment for private enterprises and promote the reform of the financial system.