Political Connection, Firms Performance And Economic Development

Political connections are common in the vast majority of countries all overthe world. This phenomenon is particularly evident in developing and transitioneconomies whose institutions should be improved and judicature should beindependent. In an imperfect market economy system, entrepreneurs, who havethe desire to maximize their profits for their own interests, will try to improvethe external political environment they are facing. On the one hand, they willseek the chance to change political resources into economic benefits. TheChina’s special economic background and political system, which is differentfrom Western Countries’, create a unique environment for political connectionresearch. Based on China’s fundamental political system-the National People’sCongress, this paper research whether the performance or other indicators ofcompany is related with the electoral success or failure of NPC’s deputy.The author collected the information of members of the10th and11stNational People’s Congress and selected out representatives from firms. BySurvey of Chinese Industrial Enterprises above Designated Size and informationof listed companies, the author matched the data of NPC’s deputies with theirassociated firms and successfully built a cross-year database which includedNPC’s deputies and their firms’ financial data information. This databaseincluded private firms and state-owned firms. At the same time, it hasinformation of private entrepreneur, senior executives of state-owned firms andordinary employees.According to regression results, the authors found that the NPC deputiesfrom enterprises have broad representation, but also have a strong rotation. Ifsomeone was elected in2003, the probability of successful selection in2008will be greatly reduced.According to DID method and by the events whether they could be selectedinto the10thNPC deputies and whether they could be reselected into the11thNPC deputies, this paper found that the performance of company has norelationship with the electoral success or failure of NPC deputies. The debt structure is the only possible one which could be influenced, but it is justsignificant at10%. On the other hand, regressions also showed that the resultsof reselections have no relationship with the performance of companies. Thisimplies that the selection of NPC deputies has a strong randomness.The regression results show that NPC deputies, one specific type ofpolitical connections, were not significant related with the firms’ performance,whether private firms or state-owned firms. This conclusion is different with theprevious studies. This implies that NPC deputies are most likely to be purehonors for entrepreneurs and that only entrepreneurs, who made a tremendouscontribution, could have chance to be selected into the NPC. The opposite result,that is entrepreneurs used the identity of this NPC to help the development ofenterprises, were not statistically significant.