An Experimental Research On Finance Report Fraud Based On Political Connection

Recently, listed Corporation financial reporting fraud phenomenon is frequently occurred, and even intensified. Previous studies have discussed the fraud influencing factors from financial identification, corporate governance and other micro perspective。 this article attempts from a new perspective, from the perspective of the political connection of the external macro exploring the affection of financial reporting fraud. The relationship between the Government and the Corporation and the influence of establishment of this relationship has always been the core of the study of political science and economics. So this article cut from a political perspective, combining the theory of political connection and considering the affection that political connection conducted to financial report output in order to analyze and demonstrate the political connection owned or established whether they would affect the financial reporting fraud. Meanwhile, from the perspective of institutional environment to do in-depth analysis, obtaining the result that whether there is impaction on financial reporting fraud in the different institutional environment.This study draws on signaling theory of economics and combines the theory of political connection. The author thinks that managers and outside investors may exist information asymmetry, managers need to pass their private information in the appropriate way to capital market, but the quality of information in the capital markets will affect the company’s value. Excellent performance and good opportunities companies are more willing to deliver real time information to investors in order to attract investor’s funds and prop up share prices. On the contrary, when the poor performance of the company, the real information will lead to significant price fluctuations, the listed company may germination false disclosure tendencies. By this time, if such companies have established a political connection, this political connection "umbrella" function will weaken risk and strengthen the possibility of financial information fraud undetected, thereby increasing opportunities for fraud. Thus we can conclude that in the face of adverse circumstances, companies with political connection have weak motivation to disclose the true financial information and ultimately deliver false financial information to the market through fraud. Political connection positively correlated with financial reporting fraud.In this paper, the author uses a large sample and establishes the logistic mathematical model to test the degree of the correlation between political connection and financial reporting fraud. The conclusion of this paper include:(1) Political connection with the company’s financial reporting fraud propensity is positively correlated.(2) When distinct different institutional environments, we know that the more serious government intervention, the stronger protection of government. In the areas of poor institutional environment, the political connection of financial reporting fraud has greater impact.The article is divided into the following six parts:The first part is the introduction. This section describes the research background, purpose and significance, research methods, the main research content, and the key issues to be solved.The second part is the literature review. This section summarized and reviewed the present domestic and foreign financial reporting fraud and political connection of the related research, and pointed out the laciness of existing literature and future research directions.The third part is relevant concept definition and theoretical derivation. This section mainly through social capital theory, resource dependence theory, and signaling theory explains why political connection has the relevance with financial reporting fraud.The fourth part is the study design. This section gave the research assumptions n the basis of theoretical analysis and introduced the relevant variable definitions and data sources.The fifth part is descriptive statistics and empirical results. This section uses descriptive statistics to the overall characteristics of the sample, and then tests hypotheses by regression through empirical models. The sixth part is conclusions and recommendations. This section first summarized above, drew conclusions, and then gave prevention suggestions to China’s financial reporting fraud. Furthermore, noted the limitations of this study and future possible direction of development.This article from the perspective of political connection studies financial reporting fraud, exploring the impact that political connection owned or established has conducted to financial reporting fraud. Meanwhile, this article from a new perspective helps government regulators make regulations to prevent and reduce financial reporting fraud, not only presenting the recognition of a new financial reporting fraud factors, but also enriching the theory of financial reporting fraud prevention.