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Political Connection and Financing Constraints: Information Effect and Resource Effect
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TitlePolitical Connection and Financing Constraints: Information Effect and Resource Effect  
AuthorYu Wei, Wang Miaojun and Jin Xiangrong  
OrganizationZhejiang University 
Key WordsPolitical Connection; Financing Constraints; Information Effect; Resource Effect; Private Enterprises 
Abstracthis paper investigates how private enterprises’ political connection relaxes their financing constraints. Empirical evidence suggests that there are two positive effects of political connection: the information effect and the resource effect. Firstly, political connection has the function of signaling which alleviate information asymmetry between funding suppliers and enterprises. Moreover, politically connected enterprises have easier access to resources which ensures the enterprises higher future earnings. Empirical evidence also shows that the resource effect dominates the information effect. A direct policy implication of this study is that, in order to reduce the private enterprises’ financing difficulty, the authority should build fair market environment, eliminate policy discrimination and give all the enterprises equal access to resources. 
Serial NumberWP344 
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