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Impacts of Political Connections on Private Enterprise Performance in China and the Analysis of Mediating Effects

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  • Yang Wen

Abstract

Based on data of Chinese Private Enterprises Survey (CPES) from 2006-2014, this paper uses OLS model and other empirical methods to estimate the impacts of political connections on private enterprise performance in China, as well as heterogeneous effects and mediating effects of different types of political connections on tax burden and non-productive activities expense. The results show that, political connections contribute significantly to private enterprises. Compared with previous political connections, like working experiences in state-owned enterprises and government-affiliated institutions, current political connections, like deputies to the NPC or members of CPPCC, have played better and further roles in enterprise performance. Tax burden and non-productive activities expense have a mediation effect in the relationship between political connections and enterprise performance. This study replenishes new evidence to describe how political connections affect private enterprise performance in China, and partly explains why private enterprises are keen on setting up political connections, which may provide valuable tips to foster a new type of cordial and clean relationship between government and business in China.

Suggested Citation

  • Yang Wen, 2020. "Impacts of Political Connections on Private Enterprise Performance in China and the Analysis of Mediating Effects," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(11), pages 1-28, November.
    • Handle: RePEc:ibn:ijefaa:v:12:y:2020:i:11:p:28
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    References listed on IDEAS

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    1. Haiyang Li & Yan Zhang, 2007. "The role of managers' political networking and functional experience in new venture performance: Evidence from China's transition economy," Strategic Management Journal, Wiley Blackwell, vol. 28(8), pages 791-804, August.
    2. Alexandra Niessen & Stefan Ruenzi, 2010. "Political Connectedness and Firm Performance: Evidence from Germany," German Economic Review, Verein für Socialpolitik, vol. 11(4), pages 441-464, November.
    3. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 119-149, April.
    4. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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