Political Connections, Audit Quality And Perks

In recent years, the behavior of senior executives from Chinese listed companies to grab private benefits through perks has attracted more and more attentions from the public. Initially, the perks are designed to improve the working environment and provide convenience in order to improve the work efficiency. However, due to lack of internal control, remuneration incentives and other reasons, the perks has become an important means for the executives of listed companies to obtain private benefits, especially in state-owned listed companies. In the text of transition of economic system with imperfect market economy and legal system, how to obtain more superior resources from the government through political connections to reduce the negative impact of system deficiencies has become a public relation strategy of non-state-owned listed companies.This paper firstly reviews literatures on political connections, perks and audit quality, then takes a theoretical analysis on political connections, perks and audit quality respectively based on the rent-seeking theory, principal-agent theory and managerial power theory. A number of scholars from various countries have explored the political connections from various aspects and there are also many studies on the perks. But, there is little literature specializing in their relationship. In this paper, the author has carried out empirical research on the impact of the political connection background of executives from state-owned listed companies on the non-normal perks, trying to explore the role of political connections in acquisition of private benefits by executives. In non-state-owned enterprises, the perks include not only the principal-agent cost, but also transaction cost used to cope with institutional deficiencies. Therefore, in the process of seeking for a political network, it should be noted whether the perks truly brings higher efficiency to the company.In addition, the factor of audit quality is introduced herein to discuss the role of audit quality in controlling the perks. The research shows that:(1) Executives from state-owned listed companies have obtained more private benefits through perks by using their political influence; (2) Similar to abnormal perks, the normal perks of executives from non-state-owned listed companies is proportional to business performance of the Company. It means that appropriate perks is conducive to improving the performance of non-state-owned listed companies; (3) The political connection background of the management can enhance the effect of perks on improvements in business performance of non-state-owned listed companies; (4) The audit quality and perks are inversely proportional to the private benefits, that is to say, audit supervision has suppressed excessive perks and effectively controlled the formation of private benefits; (5) Audit supervision can reduce the intention of political connections to obtain perks. The above conclusions have extended the study on political connections, which is helpful to reveal the relationship between the perks and self-interests of executives and the value of the company. Meanwhile, in the paper, the author also appeals to the authority for strengthening the audit supervision.