The Impact Of Political Connections To The Quality Of Accounting Information In The Listed Family Enterprises

Today, China’s private economy has become the most active and competitive partin the national economic structure. It grows fast and continues to become strongersince it was created, and it has made great contribution to the China’s reform andopening up as well as the sustainable, stable and healthy development of nationaleconomy. However, our country is still in the transition stage from the plannedeconomy to market economy, the market’s resource allocation ability is limited.Besides, the legal system and the financial market do not developed very well. As aresult, the government is still playing an important role in the resource allocation.Enterprises, especially the private family enterprises are keen to establish theconnections with the government and treat it as one of the most important strategies.Hence, political connections as a hidden and valuable resource exert great impact oncompanies’ every aspect. For the accounting information, it’s an important way for themajority stakeholders to get a better understanding of companies’ operation situationand it’s also the foundation of the economic regulation and resource allocation. So thequality of accounting information is really important to the economy’s normal running.Therefore, the impact of political connections on the accounting information qualityin the family enterprises deserved a deep research.The paper choose samples from the listed companies in Shenzhen and Shanghaiexchanges and make empirical research on the relationships between the politicalconnections and accounting information quality, using two method, the virtualvariable method and the assignment method to define the political connections.Moreover, it chose two aspects, the earnings management and illegal informationdisclosure to measure the quality of accounting information. From the earningsmanagement aspect, the paper chose listed family enterprises from year2010-2012assamples and using adjusted Jones model to calculate the earnings management result,finally, got910values for the multiple regression analysis. And from the illegalinformation disclosure part, the paper choose81listed family enterprises from year 2007-2012that were published by the regulators for the illegal disclosure, and then,according to the same industry, same period, same size principal, we found another81listed samples as comparing samples to conduct the logistic regression. At thesame time, it added the enterprises’ listing way as a mediator to get a comprehensiveand deep understanding of how the political connections make impact on familyenterprises’ accounting information as well as its influence degree. Finally, the paperhas come to the following conclusions:First, the earnings’ management degree is more serious in the political connectedfamily enterprises than the non-political connected enterprises. And if the politicalconnection level is higher and more complex, then, the influence is deeper and theaccounting information quality is poorer. The main reason is that when the familyenterprises are establishing political connections, it always accompanied by hiddenrules, and through rent-seeking, undergrounding trading ways. Thus, the familyenterprises’ accounting information is poorer.Second, compared to the back-door listed family enterprises, the politicalconnection exerts more significant influence on the directly listed family enterprises.The main reason is that the directly listed enterprises set up a closer and longerconnection with the government than the back-door listing companies. As a result,increase the risk of rent-seeking and other corrupt practice.Third, the political connected family enterprises are more likely to bring out theillegal information disclosure incident, which indicates poorer accounting information.With the higher and more complex political connection level, the phenomenon ismore serious. But, compare to the influence of political connections to earningsmanagement, the research result isn’t so persuasive, which indicate that the influencedegree might not be so deep.In general, the political connection has a very negative impact on the quality ofaccounting information. In reaction to the phenomenon, the paper put forward somepolicy suggestions for the supervisors and hopes to make little contribution to thegovernment’s policy making decision.