The Relationship Between Financial Connections and Business Performance of Private Enterprises: Evidence from Chinese Listed Firms

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.