The Effect Of Political Relation On Accounting Firm’s Value

When the members are appointed to the regulatory committee that examinesprospective initial public offering （IPO） companies, accounting firms become politicallyrelation.This relation could enable accounting firms to understand the regulatory processwhich can help their clients prepare IPO applications better, and lobby for decisions thatbenefit themself.Many researchers think that relation with regulators will help accountingfirms reduce IPO rejection risk for their clients, thus allow them to charge more IPO auditfees and increase their IPO market share. Political relaton could benefit non-top accountingfirms more than they do to top accounting firms.That’s because the big accounting firmsconcern their reputation more in order to help their clients raise the likelihood of passingthe IPO screening process,they will raise their audit quality instead of cheating.Based on the IPO cases approved by China securities regulatory commission fromJanuary1,2002to April30,2010, this article mainly studies the effect of political relationon accounting firms’IPO audit fee and IPO market share.First,this artcle analyses aboutwhy political relations will affect the accounting firm value, and through what way toinfluence the accounting firm value combined with the domestic and foreignliterature.After introducing the process for China’s IPO examination and IPO audit marketcharacteristics, the research hypotheses of this article is proposed.In the empirical part, this paper examines the effect of political relations onaccounting firms’ IPO audit fee and IPO market share and whether political relationreduces IPO application rejected risk.Political relationship in this paper is divided into twostages, namely the former political relations and political relations and political relationsare divided into stages of current political relations and post political relations.Theempirical results show that after members get FaWeiHui appointed, the small accountingfirm’s IPO audit fee and IPO market share will increase greatly, and the risk that customer’sIPO application is refused is significantly reduced,but there is no such phenomenon in bigaccounting firms after their members get FaWeiHui appointed.This paper also studies the impact of the political relations on accounting firms’resource allocation efficiency.In our country, the phenomenon of the immediate earning fell after IPO offen appears.This paper finds that compared to pre-political relationperiod,the company aprroved by the FaWeiHui in its accuonting firm’s political reltionperiod will more likely appear this kind of phenomenon.This finding shows the quality ofthe company aprroved by the FaWeiHui in its accuonting firm’s political reltion period islower.This finding suggests that if the theory of rules familiar is ture,the small accountingfirms will choose to whitewash the IPO application materials by their knowlage, instead ofusing their own resources to effectively improve the quality of the client’s financialstatements which reduces the efficiency of resourse allocation.This phenomenon is also inaccordance with lobby theory.In this theory, lobbying can make relatively poorqualifications of customers through the screening process of IPO.