Political Connection,accounting Conservatism And Overinvestment Of Private Enterprises

In recent years, political connection sparked fierce debate in academia, and became theoretical research focus. Private enterprises are mainly active in politics by corporate executives to establish political connection. However, state-owned enterprises are born with political connection. Existing studies show that political connection plays a government "aid hand" role for it can bring many benefits to the enterprise. But all things have two sides.Will political connection bring harm while benefitting?This paper studies the role of political association of listed private enterprises in two ways: one is accounting conservatism, and the other is over-investment.Make accounting conservatism as an intermediate variable to study the relationship between over-investment and political association is first metioned in academia.To achieve the research purpose, this study examined the interaction between the three variables. And formed the following conclusions:(1)Political association will lead private enterprises accounting conservatism to decline.If the political association is subdivided into different kinds, the central political connection has a significant negative correlation with the accounting conservatism of private enterprises, meanwhile the effect of local political connection on accounting conservatism is not significant.(2)There is a positive correlation between the political connection and the over investment of enterprises. If the political association is subdivided into different kinds,the effect of central political connection on firms’ over-investment behavior is not significant, meanwhile the effect of local political connection on firms’ over-investment behavior is positive and quite significant.(3) Political connection can limit the positive effect of accounting conservatism on the enterprises’ over investment. So, it may increase the probability of the occurrence of over-investment.This study enriches the relevant theoretical research. Reveals the reasons for the excessive investment behavior of private enterprises. Provide a new perspective to find the resolution of macro-level economic issues.