The Research On Political Connection’s Influence On Accounting Conservatism About China’s Listed Companies

Conservative accounting principles refers that it can reflects timely damage andconfirm tardily earnings in the released accounting information, which can more trulyreflect the operating results of an enterprise and is advantageous to the enterprise tosteady financial accounting, furthermore, helps the enterprises enhance thecompetitiveness.Accounting conservatism is an important principle in the financial reportand an important characteristic of accounting information quality. It is the vital significantfor accounting practice and accounting system. The causes of accounting conservatismare summarized as four aspects: contract, litigation, taxation and regulation. China is inthe period of economic transition, and nowadays the condition of market economy systemis not perfect, the government still controls a lot of scarce resources, thus establishingclose relationships with the government can help enterprises obtain convenience andpreference in the contract, litigation, taxation and regulation. So based on this researchidea, the paper discusses the impact that political connections, which established betweenenterprises and government, have on accounting conservatism.Firstly, this paper discusses the inner relationship between political connection andenterprise accounting conservatism. Secondly, it chose all Chinese Shanghai andShenzhen A-share listed companies from2007to2011as the researching samples, andtests empirically the overall impact that political connections have on the company’saccounting conservatism by Basu’s model. With regard to the selection of the samplecompany, besides according to executive background, this paper also makes shareholdingrelationship as the basis of defining political connection. Because，some companies areactually held by the national government, but public information shows that thecompanies’ executives have no political background. If only in accordance with theexecutives’ background to define political associations, these companies will be excludedfrom the politically connected companies. Lastly，in the process of research, politicalconnection will be distinguished local political connection from the central politicalconnection based on different levels of political background. This paper analysesrespectively different influence that the two kinds of political connection backgroundhave on accounting conservatism.The results of the empirical study as follows:①The listed companies’ accountinginformation shows the conservative characteristics in China.②With executives background defined political connections have no significant influence on accountingconservatism as a whole. After distinguishing the political level, and the central politicalconnection indeed significantly reduce accounting information conservatism, but the localpolitical connection background has no significant influence on accounting conservatism.③With shareholding relationship defined political connections reduced significantly thecompany’s accounting conservatism. When differentiating the political level, the listedcompany which controlled by the local government and by the central government hassignificantly influence on the accounting information conservatism, while compared withthe local government shareholdings, the influence that the central governmentshareholdings have on accounting conservatism is more significant than the localgovernment shareholdings.④Comparing with executives background defined politicalconnections, with shareholding relationship defined political connections have influence astronger negative effect on accounting conservatism.