Government-enterprise relation, financing plight and enterprise growth: Empirical evidence from World Bank on Chinese firms

Theoretically, the influence of government-enterprise relation on enterprise growth is divided into lubricating effect and friction effect. However, the government-enterprise relation has been discussed in only a few studies from the perspectives of enterprise financing and willingness. No unified conclusions have been formed regarding the influential consequences of government-enterprise relation. To investigate the influence mechanism of government-enterprise relation on enterprise growth, World Bank Survey of Chinese Enterprises data in 2012 was used in this study to empirically verify how the government-enterprise relation influenced enterprise growth, the mediating effect of financing plight via mediating effect models. The differentiated influences of governmententerprise relation on enterprise growth were explored through the grouping test of corporate ownership and scale. Moreover, the causal relation between governmententerprise relation and enterprise growth (the former facilitated the latter) was further tested and recognized through the instrumental variable method. Results show that the government-enterprise relation is capable of boosting enterprise growth by mitigating the financing plight faced by enterprises, thus proving the lubricating effect of governmententerprise relation. The findings still hold after the endogeneity problem is weakened by using the instrumental variable method and after the robustness test. In the grouping test, a good government-enterprise relation can promote the growth of private enterprises and small-sized enterprises by remitting the financing plight they face. The conclusions obtained from this study can provide a beneficial reference for expanding enterprise financing channels and constructing a complete financial system, and lay a theoretical foundation for probing the influences of government-enterprise relation.