Private Entrepreneur's Personal Service And Firm Performance

Private economy has been a fast developing, most vivid new economic strength arises from China's reform and opening-up, which contributes greatly to our economic development. Along with its economic status improving, the social status of private economy is getting more and more important. The 15th and the 16th National Congress of the CCP has brought a new orientation to the private economy and private entrepreneur, resulting in a boom of entrepreneurs' political actions.Through electing as Deputies to the People's Congresses or members of Committee of the CPPCC, private entrepreneurs' pursue to political aspiration has been come true. Yet, at the same time, society is focusing on the other side of private entrepreneurs' personal service-as pursuers of benefit maximum, is economic benefit another product of their political actions? Most theory argues that private entrepreneurs' political actions bring their firm potential economic benefit, but, to date, there is no empirical research carried out in mainland of China.Using event study methodology, this thesis examines the value relevant to the announcements of the 10th NPC deputies and the members of the 10th National Committee of the CPPCC, which of them amounting to 32 are all entrepreneurs of listed private enterprises. Result of the empirical analysis indicates that there are positive cumulative abnormal returns brought by the announcements. In addition, base on controlling firm's asset scale and industry style, 24 listed private firms which entrepreneurs without personal service are chose as matched samples. These samples are used to test whether private entrepreneurs' personal service improves firm performance through financial measure study. Horizontal comparison finds that in the first year the entrepreneurs elected as NPC deputies and members of the National Committee of CPPCC, firm's profit rate of core business, ROA, EPS, RCF are significantly higher than that of firms whose entrepreneurs without personal service, though the difference of ROE is not significant. Thus, whether from angle of firm's market value or financial measures, personal service of private firm's entrepreneurs do bring positive influence to firm performance. Theoretical analysis argues a variety of benefits may accrue to firms that are successful in creating a linkage with government through this political action (private service): information, resources, opportunities, reduced uncertainty, access, political influence, etc.In sum, these empirical findings indicate that firm benefits may result from private entrepreneur's personal service as a political action.As far as the result is concerned, from their viewpoint, private entrepreneurs will make their effort to take into personal service for the potential economic benefits. Nevertheless, political policy-makers should balance the influence of private entrepreneurs' personal service and decide whether they should do something to the political system.