Title

Investment opportunity set, political connection and business policies of private enterprises in China

Document Type

Journal article

Source Publication

Review of Quantitative Finance and Accounting

Publication Date

4-2012

Volume

38

Issue

3

First Page

367

Last Page

389

Publisher

Springer New York LLC

Keywords

Business policies, Investment opportunity, Political connection, Private enterprises, China, JEL classification G32

Abstract

The main purpose of this paper is to examine the factors that determine the business policies of private enterprises in the People’s Republic of China. Little is known about these private enterprises although these are surpassing the state-owned enterprises to become the most important corporate sector in China. The phenomenal growths of these enterprises provide an interesting setting to study the effect of the investment opportunity set (IOS) on business policies. We also examine how a firm’s political connection, generally believed to be instrumental to a firm’s success in transition economies, affects its business policies. We provide evidence on the importance of these factors in shaping the private firms’ business policies in China. More specifically, our results show that growth firms pay lower dividends, have lower overdue receivables relative to sales, have higher percentage of bonus shares, and are more likely to engage in joint ventures. In addition, firms with better political connection are able to borrow more, are more likely to establish a board of directors, and are more likely to acquire SOEs. These results have policy implications with regard to private enterprises in transitional economies in general and those in China in particular.

DOI

10.1007/s11156-011-0231-6

Print ISSN

0924865X

E-ISSN

15737179

Publisher Statement

Copyright © Springer New York LLC 2012. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Chow, C. K. W., Fung, M. K. Y., Lam, K. C. K., & Sami, H. (2012). Investment opportunity set, political connection and business policies of private enterprises in China. Review of Quantitative Finance and Accounting, 38(3), 367-389. doi: 10.1007/s11156-011-0231-6