Chinese Corporate Governance Transition, Political Connections and Firm Performance

摘要

The transition from Administration Governance to Economic Governance is the typical characteristic of Chinese corporate governance. Governance transition of Chinese private firms is experiencing the stage of "political connections relying". The political connections of private firms established benefits of preferential financing, but also faces the risk of long-term value decreased. In this paper, in order to examine channels, the benefit or risk of political connections based on the transition background, we construct the Political Connections index (PC) with four dimensions, including Real Controller, Boards, CEO and Independent Directors. Using data of 234 private firms for 5 years from China, we find that PC decreases year by year, which confirmed the view of governance transition; young and large firms has the higher degree of PC and the main channel is Boards; Empirical research also shows that while PC is higher, its financial performance, and stock market performance become worse, which verify the view of PC-risk; while higher the PC, higher the debt ratio of the assets, which confirmed its preferential treatment of PC-benefit view.Our test are robustness to four different Sub-PC and estimation techniques.