Political Connection and Cost of Equity Capital of Private Enterprises from the Perspectives of Law and Economics
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Political Connection and Cost of Equity Capital of Private Enterprises from the Perspectives of Law and Economics
ZHAO Feng 1,2, GAO Ming-hua 1， MA Guang-ming 1
(1.School of Economics and Business Administration，Beijing Normal University， Beijing100875, China|2.School of Economics, Beijing Technology and Business University, Beijing 100048, China)
Abstract From the perspective of law and economics, the authors construct a model to research the logical relationship among political connection, legal system and the cost of equity capital. The findings indicate that political connection and equity capital cost are negatively correlated, and when the legal system is not perfect, political connection can protect private enterprises’ property rights and reduce their equity capital cost|there exists a negative correlation between legal protection level and private enterprises’ equity capital cost, and the improvement of legal protection level can bring private enterprises and external investors a win-win situation|political connection and legal system can be substituted by each other, and constant improvement in the legal system can reduce the function of political connection. The results provide decision making foundation for strengthening the national legal system
DIAO Feng,GAO Meng-Hua-,MA Guang-Meng-. Political Connection and Cost of Equity Capital of Private Enterprises from the Perspectives of Law and Economics. Economic Survey, 2011, 28(2): 0113.
2011, Vol. 28 
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