The Relationship Between Political Background, Deviation And Private Enterprise Performance

With the development of private economy, the relationship between corporate andgovernment becomes more and more closed. Ultimate controllers of listed firms havepolitical background, and the phenomenon becomes more and more popular. However,there exists the dominance of one shareholder, the deviation between cash flow rightsand control rights in private corporations, which have direct influence on performanceand value of private enterprises. More and more controlling shareholders plunderminority shareholders and emptied profits of listed companies. Under the situation, toexplore the relation of political background, the deviation between cash flow rightsand control rights and corporate performance is significant for listed firms’development and even for the whole private economy’s long-term stable prosperity.Using947samples of “A share” private listed firms from2008to2010inShanghai and Shenzhen Stock Exchange Markets, this thesis collects the ultimatecontrollers’ political background information of those listed firms by hand. We dividethe political relationships by nature and level, and study their effects on privatecorporate performance. Besides, we study that how the deviation between cash flowrights and control rights affect political relationships and corporate performance.The empirical results show that in China’s private listed company, politicalconnection has not only resource effects but also deviation effects. Politicalconnection has a significant positive effect on corporate performance, and the higherlevel, the better the performance. The private company with political background hasa excellent performance than those without political connection. Furthermore, centralpolitical connection can contribute more than local political connection. Those tell usthat political background has resource effects. Ultimate controllers’ politicalbackground has a significant positive effect on the deviation between cash flow rightsand control rights, and the higher level, the bigger the deviation. In the privatecompany with political background, the deviation between cash flow rights andcontrol rights is bigger than those without political connection. Furthermore, undercentral political background, the deviation is bigger than under local political background. Those tell us that political background has deviation effects. Whenconsidering the deviation’s regulation, we find that as the deviation enlarges, politicalconnection’s strength weakens gradually, and higher level political background’spositive effects weaken too. Those tell us that when the deviation between cash flowrights and control rights enlarges, political background’ resource effects becomesmaller and smaller, while the deviation effects become greater and greater. Therefore,private listed corporations’ performance becomes weaker and weaker.