Debt Financing,Banking Connection And Accounting Conservatism Of Chinese Private Enterprises

Since China carried out reform and open policy, private enterprises have made aconsiderable progress. And this has played a great role in promoting China’s economicdevelopment, improvement of market institutions, social science and technology and so on.Environment for private enterprises has been in an increasingly changing, but because ofChina’s national conditions and its own situation, private enterprises also face a lot ofproblems need to be solved. Debt financing difficulties is a major bottleneck in thedevelopment of private enterprises. There are a lot of research has been carried out, but theproblem still exists and hasn’t been solved perfectly. At present the bank debt financing is stillthe main way of external financing of China’s private enterprises. Asymmetric information isone of the important factors that hinder the lending relationship between private enterprisesand banks. That’s where the Accounting Robustness is needed.Accounting robustness is one of the important financial indicators to measure the qualityof accounting information in the report. Basu (1997) gave descriptive definition foraccounting robustness which is recognizing earnings needs more assurance than losses in thefinancial statements. Watts (2003) pointed out that the contract is one of the reasons whyaccounting robustness is needed and debt covenants will have an impact on the accountingrobustness. Bank connection is a relationship and reputation mechanism, which means privateenterprises hire staff with banking experience to join the company. Overseas studies haveshown that relationship and reputation mechanism had a significant impact on corporate debtfinancing in countries where the institutional environment is not good (such as countries witheconomies in transition).In this paper we use a sample of Chinese A-share listed private enterprises from2009to2011, and select the robustness model which designed by Basu in1997to do the research. we made theoretical analysis and empirical test on the role of both banking connection andaccounting robustness in the short-term loans and long-term loans from the point of view ofboth creditors and debtors， results show that accounting robustness and the proportion ofshort-term loans positively correlated with the proportion of long-term loans negativecorrelation； compared with private enterprise no bank connection， the accountingrobustness of the private enterprise have a bank connection greater impact on the proportionof short-term loans， the proportion of long-term loans to a lesser extent， this meas that thebanking connection and accounting robustness strengthening effect on short-termborrowings， long-term loans substitution effect.