Political Association, Diversification Strategy And Business Performance

Political connections are an universal phenomenon in the process of economic development in the world. In one hand, the process of developing political connections is the process of chasing transverse social capital using the connection network of superior managers for enterprises to bring direct or indirect profits. In the other hand, it costs that enterprises establish and maintain political connections and enterprises carry on rent-seeking cost of the government, which damages enterprise value. In China, a number of private enterprises are actively forming political connections with the government through a variety of means. Then, does the private enterprise political connection affect its strategy and performance? If so, does it promote or hinder the improvement of enterprise performance? So it is necessary for us to exam how private enterprise political connection affect enterprise strategy and performance.Firstly, this paper using social capital theory, resource dependence theory, rent-seeking theory in combination with finance, political science, psychology, exploring the influence mechanism of political connection on private enterprise. Secondly, on the basis of theoretical analysis, putting forward research hypothesis about political connection, diversification strategy and corporate performance, building econometrics model. Then, selecting the Shanghai Stock Exchange listed private enterprises from2009to2011as samples, making empirical test on the proposed hypotheses. Finally, based on the results of empirical analysis, we put forward some related political suggestions to promote the healthy and sustainable development for the private economy.There are main conclusions of this paper as follows:(1) Political connection has significantly positive influence on business and regional diversification;(2) Political connection has significantly positive influence on corporate performance, political connection is a kind of effective resources, it can increase the enterprise value;(3) Business diversification has significantly negative influence on corporate performance, while regional diversification has significantly positive influence on corporate performance;(4)Political connection has negative influence on the relationship between business diversification and corporate performance, while political connection has no significantly influence on the relationship between regional diversification and corporate performance.