Political Relevance, Accounting Conservatism And Debt Financing Costs

As the economy slows,private enterprises face more differently in capital rising.At the same time,although the reform of economy become more quickly,government still remains a dominant position in the process of economic development.If the enterprises get relationship with the government,it may gain advantage in resource distribution,tax preference,and industry access.On this background,all private enterprises continue to look for opportunities to build relationships with governments.It can provide more protection to its finance and chance for development.In normal condition for apply to funding;creditor will check the information which offers by the enterprise before making decision.The cost of capital is inversely proportional to the quality of financial information provided by enterprises.High quality of financial information corresponds to high accounting conservatism.When enterprise got political connection,the role of government as implicit guarantors will lower the quality of financial information required by creditor.In that context,this essay chooses private listed manufacturing enterprise as sample.Meanwhile,set the background of political association to research the relevance between political connection,accounting conservatism and debt financing cost.Contributions could be made by this essay to capital financing.First,this essay goes through literatures in china and abroad.Then,Make a summary about the relationship between three core concepts.Subsequently,it follows previous research achievements to propose this article's assumes rationally.Then,choose private manufacturing enterprises which list in small-and medium-sized stock market as sample.Totally,it has 448 companies and the period during 2012-2015.At last,select suitable variables to set up positivism model.Then,we use Stata to analyze all data-and arrived at these conclusions.First,political connection will lower the accounting conservatism of private manufacturing company.Second,debt financing cost changes in the reversed direction with the accounting conservatism.Third,political connection will lower debt financing cost.Fourth under the same condition of political connection,company which has high accounting conservatism will get lower debt financing cost.In the end,this essay gives some advice.Firstly,private listed manufacturing enterprise could choose to establish political connection as a middle or long-term strategy.In the long term,it should make itself stronger.Secondly,to establish laws to regulate political connections.Thirdly,standardize the market disclosure policy.Then,try to strengthen the information disclosure and improve ability of government management.In the end,make plans to establish financing platform.