Political Connections Intensity: A New Measure for Political Connections and Firms' Outcomes

We investigate the impact of Chinese private-owned enterprises? political connections on financing capabilities and investment behaviors analyzing the connections? level and type. Furtherly, we develop a new standard measurement to measure the connection intensity. Firms with political connections in national or local government, with decision-making authority, are more likely to get financial and investing tools. Firms can neutralize the negative effect generated by the rigidity of the financial system, economic and legal system by using direct or indirect connections to local or national governments. Thus, they get better credentials and have higher private property rights protection. In the article, we analyze firms listed in the Chinese Growth Enterprise Market of Shenzhen Stock Exchange, from 2014 to 2016. Findings show that both connections level and type generate different outcomes. Low-level connections and people with government official background better influence companies? capabilities; the government is not a uniform entity, and the relationships between various government institutions generate a different impact. Our study also provides a methodological contribution putting forward a new standard measurement for the connection intensity. Furthermore, our research suggests interesting interrogatives about the future of political relationships in light of a higher level of openness of the Chinese economy.