Political Connections,Financing Constraints And The Formation Of Zombie Enterprises

Under the background of the "new normal" of China's economy,the"three-to-one-subsidy" is expected to solve the plight of China's economic development,and more importantly,to solve the zombie enterprises with poor profitability but huge social resources in the economy.However,to solve the problem of zombie enterprises,we must first clarify the formation mechanism of zombie enterprises.In the context of China's political and economic system,this paper focuses on the relationship between political connections,financing constraints and the formation of zombie enterprises.Firstly,based on the existing literature,this paper studies the relationship among political connections,financing constraints and zombie enterprise formation,and divides financing constraints into equity financing constraints,debt financing constraints(including debt financing constraints and credit financing constraints).On this basis,this paper puts forward four theoretical hypotheses.Secondly,based on the improved CHK method and adding financial indicators,this paper identifies the zombie enterprises of Listed Companies in China from 2011 to 2016,and summarizes them year by year and industry.It is found that the number of zombie enterprises of Listed Companies in China accounts for about 35%of all listed companies in the sample period,with a maximum of 58.33%.The number of zombie firms in different industries is most concentrated in manufacturing,followed by real estate,and the third is wholesale and retail.Thirdly,this paper uses logit model to test the relationship among political connection,financing constraints and the formation of zombie enterprises.On the choice of variables,we measure political connection by the relationship between the government background of the board of directors and supervisors,measure financing constraint by equity financing constraint,creditor's right financing constraint(debt financing constraint and credit financing constraint),measure interaction effect by the interaction of political connection and financing constraint,and add a series of control variables.Time fixed effect and industry fixed effect.The empirical results show that:(1)debt and credit financing constraints have a negative impact on the formation of zombie enterprises,the lower the constraints,the higher the possibility of forming zombie enterprises.But for equity financing constraints,the lower the financing constraints,the lower the probability of forming a zombie enterprise.(2)the existence of political connections will increase the possibility of enterprises becoming zombie enterprises.(3)Political connections will strengthen the influence of debt financing constraints on the formation of zombie enterprises,and further make enterprises with low debt financing constraints become zombie enterprises.The strengthening effect of political connection does not exist in equity financing constraints.Fourthly,this paper replaces the asset-liability ratio index in the identification of zombie firms with the net profit index,and re-identifies the zombie firms of Listed Companies in China,and finds that the zombie firms are still concentrated in the manufacturing industry.The result is roughly the same as before.Finally,this paper puts forward policy suggestions on how to prevent and dispose of zombie enterprises.To prevent zombie enterprises,one is to increase the proportion of direct financing and encourage enterprises to carry out equity financing,which is conducive to introducing external investors to carry out the necessary supervision of the production and operation of enterprises.The two is to strengthen the debt financing constraints of enterprises.The disposal of zombie enterprises should be classified according to the different botnets.