Abstract
Sample data were acquired from Chinese listed private enterprises. Then, the random effect model of panel data was used to establish a regression model of business performance and firm financial connection and examine the relationship between them. Results showed that the higher the degree of private enterprise financial connection, the worse the business performance of the enterprise. In other words, financial connection provides financing convenience, but it cannot improve business efficiency. We also classified the sample enterprises according to size and found that financial connection has a greater negative impact on the performance of small-scale firms compared with large-scale ones. Moreover, dividing the sample enterprises according to the degree of financial marketization in the location of the sample enterprises indicated that financial connection has a negative effect on the performance of private enterprises in areas with low degree of financial marketization. The classification of financial connection also revealed that non-bank financial connection exerts a greater negative impact on corporate performance than bank financial connection.
Highlights
An open financing channel is an important factor in promoting the growth and development of private enterprises
The phenomenon that enterprises employ the executives with financial background is defined as financial connection which can be measured by the ratio of financial affiliate executives to the total number of executives
Definition Return on assets, as the net income divided by average total assets Ratio of financial affiliate executives to the total number of executives Natural log of the main business income of the company Level of financial development measured by the ‘year-end loan balance/gross regional product’ of each province Enterprise R & D investment intensity expressed as the ratio of enterprise research and development (R&D) investment to total assets Ratio of the number of shareholders to the total number of shares Virtual variables of the industry divided according to the virtual variables in the industry classification guidance of listed companies published by the CSRC in 2012 Annual virtual variable
Summary
An open financing channel is an important factor in promoting the growth and development of private enterprises. The phenomenon that enterprises employ the executives with financial background is defined as financial connection which can be measured by the ratio of financial affiliate executives to the total number of executives It is a critical component of the relationship and reputation mechanism, which, in turn, has a significant influence on business activities and outcomes. Zhuwei Li et al.: The Relationship Between Financial Connections and Business Performance of Private Enterprises: Evidence from Chinese Listed Firms recessive guarantee for the company and help boost the company reputation. Such efforts can relieve the financing constraints of private enterprises.
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