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Institutional Environment, Political Connection of Board and Firm Value

Author: XuZhiRu
Tutor: LiuMeiYu
School: Dongbei University of Finance
Course: Business management
Keywords: Institutional environment Board Political connection Firm value
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 205
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Abstract

Under the background of economic transition in our country, the private enterprise has the characteristics of political connection. It’s more and more popular that the board have political relationships. As the highest internal control mechanism, the board engaged in supervising the behaviors of senior managers and put an irreplaceable role in corporate governance. The background and professional experience of the board members can affect their ability of supervision and decision,which have an impact on firm value. The political relationship can be viewed as an important resource, which plays a vital role as equity status and governance. Therefore, the research of relationship between political connection and firm value is very significant.This paper using 1553 samples of listed private firms during 2007～2009 in Shanghai and Shenzhen Stock Exchange Markets. I’m collecting the board of directors’ political connection background of those listed private firms by hand and portraying their political relationship.Through constructing the political connection index of board,setting enterprise value model, using the Multivariate linear regression analysis method to study the relationship between relations on board and firm value and the influence from institutional environment.Specifically,during the theoretical researching, first of all, on the basis of reviewing and commenting the relevant literature, in the background of economic transition and company management, I puts forward the research hypotheses through theoretical analysis,and established the theory model.In the theoretical model,the political connection of board and firm value is respectively the independent variable and dependent variables.The external factor as institutional environment which may affect their relationship is the moderator variable.The other factors as company size, financial leverage, ownership structure and age, which may affect firm value are control variables.In the part of empirical studying, first of all, I did the descriptive statistical analysis on each variable; Secondly,I use Pearson correlation coefficients on the main variables to review a linear relationship;What’s more,I use multiple regression analysis to research the hypotheses;Finally,I test the robustness by replacing the independent variables and the dependent variables,which may examine whether the research result is reliable.With the help of Excel and the SPSS17.0,I complete the date processing and empirical analysis.The research result shows:The political connection of board has significant positive influence on the firm value,this positive influence will be more evident in the areas of poor institutional environment, where there is more official intervention,earlier stage of market transition and weaker legal protection, this positive influence will be weaken when the institutional environment is better. As the political connection was divided by area, it’s find that board with central political connection has significant positive influence on the firm value,but the local political connection is not; However, inconsideration of the factor of institutional environment, the influence will become significant positively in the areas of poor institutional environment. As the political connection was divided by types, the board with governmental political connection can make more contribution to improve firm value than the congressional political connection,this positive influence will be more evident in the areas of poor institutional environment; As the political connection was divided by the members’ positions,the political connection of inside director is more valuable than outside director’s,and in the areas of poor institutional environment,the value is greater.The study results give the enlightenments as follows:The private enterprise should seek the political connection actively; The take reasonable political relevance;Regulate the legality of political association of private enterprise; Perfecting the institutional environment of the private enterprise.

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