A Study On The Influence Of Political Connections Breakage On Enterprises' Innovation

Political connections are regarded as an effective alternative mechanism for the informal system,which provides an opportunity to interpret the internal motivation of China's rapid economic development.Academia has launched extensive research on the impact of political connections on enterprises' innovation.With the deepening of the research,the economic consequences of political connections breakage have begun to attract the attention of a few scholars at home and abroad,but no research has been done about the impact of political connections breakage(PCB)on enterprises' innovation.The policy issued by the Organization Department of the Central Committee of the CPC in 2013 called further standardizing the issue of Party and government officers' part-time job in enterprises(document No.18),had triggered a wave of resignation of the independent directors with government official identity from the listed companies.This natural experiment provides a great opportunity to study the influence of PCB on enterprises' innovation.This paper uses Delphi method to define the concept and measurement method of PCB.PCB is the phenomenon of the loss of corporate political resource mainly expressed by the resignation of the independent directors with government official identity at present.This paper uses the ratio of the independent directors with government official identity who resigned and the product of their administrative rank and the level of the office to measure.This paper builds the innovation performance evaluation index system of “input-output”,and uses DEA-Malmquist to evaluate innovation performance of listed companies.This paper uses the Difference-In-Difference method and fixed effects model and take the data of the listed companies of Shanghai and Shenzhen A shares form 2012 to 2016 as samples.We find: The resign of independent directors with government official identity has a significantly negative effect on original innovation performance of enterprises with political connections breakage,but indistinctively affect total innovation performance and secondary innovation performance.This negative effect evidently appears in non state-owned enterprises(Non-SOE),but not in state-owned enterprises(SOE).According to further research,the greater the degree of PCB and the higher the level of PCB,the worse the innovation performance of Non-SOE.However,R&D investment has a distinctly moderating effect.Themore R&D investment,the less the negative impact of PCB on Non-SOE.Government should pay attention to create business environment and guarantees the fairness of innovative resources distribution to weakens the motivation of enterprises to seek political connections.Government should further strengthen the docking with enterprises in the process of policy formulation,publication and implementation to give full play to the guiding and supporting role of innovation policy.Legislatures and government regulatory administrations should standardize the appointment mechanism of independent directors of listed companies by laws' way.Non-SOE could employ experts and industry veterans in the field of innovation as independence directors to avoid political connections' negative effect.Meanwhile,they should focus on developing innovation potential to improve original innovation performance and corporation value.Through the natural experimental study of the resignation of the independent directors with government official identity,it is proved that the influence of document No.18 on the innovation of the listed companies will help to understand the economic consequences of PCB more comprehensively and accurately.The research boundary of political connections and enterprises' innovation has been promoted,and the research literature in this field has been enriched.It is of great significance to understand the role of “the supporting hand” or “the grabbing hand”,and how to reduce the possibility of establishing political connections and standardize China's independent director system.The research results will provide the reference for policy formulation and enterprises' decision making.