Research On The Relationship Between Political Connections Of Private Listing Companies And Corporte Over-Investment

China is an economy in transition, government still plays an important role in the economic and social activities, and holds important resources that can affect company’s survival environment and competitive position. But the status of private enterprises is lower compared with state-owned enterprises, there are problems in financing and other aspects, so private enterprises are willing to establish political connections with the government, in order to bring more financing conveniences, preferential taxation policies and so on. Meanwhile, there are serious principal-agent problems after the ownership and management separated in the modern enterprise system, which result in over-investment behaviors. Many scholars have studied the causes and restraints of over-investment, this article analyses the impact of debt financing on enterprises’ over-investment behaviors based on the perspective of political connections.Based on the literature review of related research both domestic and oversea, this study combines both normative and empirical research methods, and selects the data of private listing companies from the Shanghai and Shenzhen stock markets during the period of2007-2011as the study sample, then determines the levels of over-investment in listed companies by Richardson investment model, and manually collects the political information about the executives. Next, this article uses empirical methods to make a research on how debt financing affects enterprises’over-investment behaviors based on the perspective of political connections, regression results show that:(1) the higher the degree of political connections of the executives in private listing companies, the more convenient financing is;(2) Debt financing in the private listing companies could restrain the over-investment behaviors;(3) Based on the perspective of political connections, debt financing in the private listing companies will produce soft constraints, that can make executives control more free cash flow to cause more over-investment behaviors. The conclusion is of certain significance to further deepen the research of the relations between financing and investment, regulate connections between government and corporations, and improve efficiency of investment.