Study On The Impact Of Political Connections On Private Enterprises’ Financial Behavior

Reform and opening up, the rapid development of private economy, more and more private entrepreneurs topped various honorary titles, such as NPC deputies or CPPCC active role in the political field. Many private companies are also active in various ways to establish political relations with the government. China’s economic system provides the state-owned economy as the main form of economy; the government has the sole right to decide the allocation of resources, which determine the state-owned enterprises have a certain priority. Therefore, private enterprises trying to establish political tie to improve the allocation of resources in the community of disadvantage. But the benefits are is bidirectional, the political connection brings some benefits to the private enterprises, it requires them to make a certain "contribution." In this case, the political tie has both positive and negative effects. On the research of the political connection and corporate loan financing, previous scholars found that although the political tie to the enterprise has brought the convenience of financing, but the impact on corporate governance is indeed negative. It said political tie played as a negative role. In this paper, a new perspective as a starting point, through study the influence of the political connection of private enterprise financing behavior, and how the political connection affects the enterprise management efficiency, found that political tie played as a positive role, it can reduce the agency cost effectively, improve the asset turnover then improve the performance of enterprises.Choosing Chinese private listed enterprises during 2007-2012 as samples, this paper studies the impact of political connections of private enterprises and differences of institutional environments on acquiring bank loans, and analyzes the governance effect of bank-debt and its impact on firm value. The results showed that: political tie can help the firm to acquire more bank-debt, especially able to obtain long-term loans. Worse the institutional environments are, stronger the effect of political connections in helping private firms to acquire more bank loans is. Political tie can overcome the drawbacks of market institution as an informal mechanism. This paper provides a new perspective for the study the political background of the impact on corporate performance.Improvement and innovation of this study is mainly reflected in: the majority of scholars’ research about the political tie through the relation of corporate investment behavior and corporate governance, while ignoring the political tie for optimizing resource allocation efficiency. This paper improves the political connection on the impacts of the private enterprise behavior.