Chinese Private Listed Enterprises’ Political Connections and Financial Constraints Reduction: A Non-linear Effect and Optimal Level Perspective

Abstract

Abstract:Political connections are often utilised by private enterprises to obtain easy financing in China. However, past research on the financial benefits from such utilisation has yielded inconsistent findings. This can be explained from the perspectives of nonlinear effect and of optimal level of political connections, which have not yet been explored. This article aims to estimate the “optimal” level of political connections using the non-linear specifications on a sample of Chinese private-listed enterprises. Findings have shown that political connections reduce enterprises’ financial constraints only to a certain extent and over-connecting politically could be dysfunctional. The Chinese approach in utilising political connections should aim to attain an optimal balance between maintaining a political relationship and building firms’ capability. The findings provide further evidence that enriches the understanding of China’s unique socialism with Chinese characteristics.