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
Language
English
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