Political Connections And Financing Constraints

30 years of reforming and opening up, the private firm has gradually become an important part of China’s economic structure through continuous development. Private economy has created at least 60% of the value to the national economy; Consider the tax, the private firm contribute 70% of the tax revenue; As for employment, the private firms absorb 70% of the total national urban employment,which largely easy the employment. Therefore, private firms play a very important role in the economic construction. However, the development of private firms is still restricted to many restrictions, of which the most prominent is the capital constraints.Political connection exists in private firms, which is the main way for China’s private firms to obtain more development opportunities and interests. At present, the domestic market economic system is continuously improving, relevant laws and market regulation is more and more important in China’s economic operation. But because of the special situation of our country and the uneven regional development,in the area of where laws and rules is not perfect, the government’s intervention on business and other economic activities still affect the firm’s survival and development largely. As the business activities of the private firms is mainly governed by the local government, so the central and local government background play different roles on corporate capital constraints.This article using 696 private-owned companies listed from 1997 to 2010 years in china as study sample. The capital model is estimated by using generalized method (GMM method) empirically analysis the impacts that political connections of private-owned companies listed act on the corporate Financing Constraints. The study found that overall, political association advantage can bring convenience to corporate finance, but if the firm’s background is distinguished by different government backgrounds, we found that contrast with central backgrounds,the firms with local government backgrounds are more able to take advantage of the political resources to obtain financing for their own convenience. After further consideration, think of government intervention and marketization. We found that if a region has less government intervention and a high degree of marketization, the advantages of financing facilities and by political association will be weakened.