Political Connections,Audit Quality And Corporate Investment Efficiency

With the decline of China's economy in recent years,coupled with the immaturity of China's capital market and the existence of agency conflicts,inefficient investment phenomenon is not uncommon now.The "2017 government work report"pointed out that China's resource allocation efficiency to be improved.Some industry production capacities are surplus,while some enterprises are in serious lack of resources,which led to low efficiency of corporate investment.Based on the problem of reducing information asymmetry,supervision and insurance,this paper studies the impact of audit quality on investment efficiency,and provides a new way to improve investment efficiency.Besides,in order to get some resources from government,there is a common phenomenon that enterprises establish political connections with government.Indeed,political connections bring convenience like financial channels,tax incentives,government subsidies and investment opportunities for enterprises,which contributes to alleviate enterprises' financing restrictions and reduce the difficulty to enter industries limited by government.But it pays much to establish political connections,which invisibly increases enterprises' policy burdens and causes unfavorable impact on enterprises.Hence,on account of two sides of political connections,the article respectively studies the different influences caused by political connections on over-investment and under-investment.At last,the article introduces the cross-multiplying item of political connections and audit quality to examine the influence on investment efficiency by the common functions of them.This paper chooses all listed companies of A-share from 2009 to 2015,and makes empirical tests based on principal-agent theory,information asymmetry theory,free cash flow theory,rent-seeking theory and signal transfer theory.The results show that:(1)High-quality audit can raise corporate investment efficiency.Specifically,the higher the audit quality is,the more enterprises' over-investment can be controlled,and the more enterprises' under-investment can be reduced.(2)Political connections affect corporate investment efficiency as well.Political connections are negatively associated with corporate over-investment,which means that political connections will increase enterprises' over-investment.But political connections are negatively associated with under-investment,which means that political connections can relieve enterprises' under-investment.(3)After the introduction of the cross-multiplying item of political connections and audit quality,it finds that the political connections will weaken the repression caused by audit quality on over-investment.Meanwhile,political connections also weaken the alleviated effect on under-investment of audit quality.In addition,the research on investment efficiency is less considering the quality of audit.This paper confirms that audit has the function of reducing information asymmetry,supervision and insurance,which can improve the investment efficiency and enrich the economic consequences of audit quality.On the other hand,political connections have different effects on corporate over-investment and under-investment respectively,which makes enterprises further know that the political connections'dual role as helping hand and the grabbing hand and to be more rational to view the different effects brought by political connections.What's more,find its way to improve enterprises' investment efficiency truly at their sources instead of just relying on political background.