The Reason And Influence Of Political Connections In Chinese Listed Firms

In the process of world various economies development, political connectionsbecome a common phenomenon and widely exist in most countries. Politicalconnections are mainly from the game between the government and enterprise.Government controls the enterprise in order to achieve the policy objective orrent-seeking. And seeking for profit maximization, enterprises establish close tieswith the government to chase scarce resources controlled by the government or avoidrent-seeking from government infringement. Scholars researched the impact ofestablishing political connections from property protection, government interventionand financial development of the different regions, focusing on horizontal comparison.But in the special top-down political system of China, the government of differentadministrative hierarchy has a significant difference on target and behavior. Thereforethis article research the reason and influence of political connections in the listedfirms of China, concentrating on the vertical angle of the political system.The samples of this article are private firms and state-owned firms in China’sA-share listed companies. We research the influence of administrative hierarchy forlisted firms establishing political connections using the Logit model, and study theimpact of political connections for performance using the multiple regression models.For private enterprises, we find there are more political connections in higher levelcities, and as economic environment improves, that relationship will become weak.Political connections can significantly improve the performance of private enterprise,and as the city’s administrative level enhances, the positive impact of the results willbecome strong. For SOEs, we find there are more political connections in SOEs ofhigher administrative hierarchy.For central SOEs, political connection has no effecton its performance. For local SOEs, political connection has positive effect on itsperformance.This study enriches the research system of domestic and foreign scholars onpolitical connections and provides empirical basis and reference for governmentreform, the market process as well as the restructuring of SOEs.