Political Connections, Corporate Performance And Loan Renewals

In recent years, bank loans accounted for more than half of the debt ratio of listedcompanies in China,it means that bank loans in China’s external financing businessplays a very important position, and "loan renewals" policy determines whether acompany can continue to access bank loans to support normal business operations.Political connections can help companies get more bank loans has been verified in manycountries, then the impact of political connections to companies is becoming a hot issueof academic research. However, the current research on the politics connections withbank loans in China’s enterprises, ignoring the different Institutional Environments anddoes not distinguish between the first loan and loan renewal. Summarized the previousstudies, we found that the factors that affect the bank’s lending policies are not thesame,such as to affect the lending rate and the number of loans policy is not the same,So what kinds of factors will affect the Loan renewals policy? This will be the focus ofthis article.There are big differences in different regions due to the level of financialdevelopment, the level of legal environment and the administration’s political influencein China.so by the data of Chinese non-financial listed companies in Stock ExchangeMarket during2004-2008, the paper investigates the relationships between politicalconnections,corporate performance and loan renewals in different InstitutionalEnvironments.Exploring the possibility of political connections can serve as analternative informal mechanisms, alleviate the backward system to the development ofprivate enterprises to obstruct the function, to help private enterprises to seek access tobank credit channels to provide theoretical support.This article first systematic exposition of the current relevant research aboutpolitical connections, bank loans, description of the revelation of this article from thecurrent research,which leads to the perspective of this study.Secondly, in a briefintroduction to the special institutional background on the basis of factors affect bankloans, combining our country’s unique backgrounds,basing on political connections,Institutional Environments and bank loans policy, we put forward the researchhypotheses of this paper. and construct an empirical test model. Finally, we give theempirical conclusions of this paper,and put forward policy recommendations to promotethe healthy development of China’s private economy. We get the following conclusions:①Political connections do have impacts on access to more preferential treats ofbank loans renewals,and to bring the convenience for the corporate finance. Wealso found that political connections have impacts on bank loans in differentInstitutional Environments. Political connections can help enterprises get morebank loans, may not be the direct government intervention in banks creditpolicy outcomes, but due to the government for these enterprises to provide animplicit guarantee.②Compared to enterprises with good performance, the poor performance of theenterprise rather get more new loans continued. We also found that politicalconnections could well improve company performance, and it’s more noticeablethe effect of political connections in enterprises with good performance.③We also found that state-owned bank commercialize reform is more thorough,bank loans is based more on market allocation without other such asgovernment intervention and other factors in higher level of institutionalenvironment area, It observed the higher level of regional property rightprotection, the less powerful of the government intervention and the higher ofthe financial development, the less loan renewals the enterprises will get.