Managers' political connection, corporate diversification strategy and enterprise growth: Evidence from China's listed company of manufacturing industry

Abstract

The relationship between government and enterprises is the major issue in the process of economic reform in China, and how to study the mode of the relationship between enterprises and government and its efficiency is an urgent issue. This article does the research from the perspective of the relationship between managers' political connection and corporate diversification, and analyses specifically the effect of political connection on diversification and enterprise growth. The study found that higher political correlativity between government and enterprises indicate that political connection helps companies get more diversified resources. Meanwhile, the enterprises with higher political relativity bring higher enterprise growth through implementing diversification strategy, indicating that political connection can be recognized by the market as an alternative mechanism. The paper enriches the literature on enterprise diversification and the relationship between government and enterprises, meanwhile, it provide the reference for economic reform in China.