Political Connection、Accounting Information Quality And Overinvestment Of Chinese Private Listed Companies

As an important foundation for growth of future cash flow, companies’ investment will directly affect the company’s financial decisions. However, the inefficient investing behaviors, including overinvestment and underinvestment, will be harmful to the development of the enterprises, and will eventually result in the waste of resources as well as the fluctuations in income. In China, private economy has been an important part of economic system. And their investment behaviors also play a significant role in the country’s economic growth. However, there are overinvestment behaviors due to blind impulse and short sightless. So to analyze the overinvestment behaviors of the private listed companies is significant to the theoretical guidance and policy development.China is an emerging and transitional country, and the government still controls a number of critical resources and the right. Compared to the state-owned enterprises, the private corporations have to face more diversified and complicated problems in the procession of investment because of the different kinds of constraints. In order to obtain more economical benefit, the private companies usually try to build a political connection with the relative government. This phenomenon has got broad attention at present. However, few scholars focus on the influence caused by the political connection on the investment efficient of enterprise. In addition, most of the theories concern on the direct impact, and the indirect influence is ignored. In this way, the researches lack of comprehensiveness and systematization. A great number of researches abroad have proved that the quality of accounting information could not only alleviate the corporate agency conflicts, but also reduce the problem of information asymmetry. Overinvestment behaviors of enterprise could be prevented efficiently by high accounting information quality. However, that result above is based on the mature western capital market. Under the unique systematic condition in China, especially when the political connection between private company and the government exists extensively, a lot of key resources will not be allocated according to the market mechanism. Then, can the political connection indirectly affect the overinvestment behavior of company according to weaken the impact of accounting information?After given the definition of the relative variables, we analyze the root reasons of the overinvestment behavior of the companies from principal-agent perspective and information asymmetry perspective firstly. In the following part, we describe respectively the mechanism of political connection and accounting information quality on the overinvestment behaviors of the private companies. In the empirical analysis, we take221listed private enterprises in all in Shanghai and Shenzhen A stock market during2008-2009as the sample, and combine with the date from2007to2009, in order to deeply discuss both direct and indirect influence exciting extensively among the private corporations on the overinvestment behaviors of the company. The results are as follows:(1) High quality of accounting information could reduce the overinvestment behaviors of the companies efficiently. Specifically, First, high quality accounting information can add liquidity of the capital markets, reduce risk level of future profit that investors expect, and help investors to make correct asset pricing, thus high quality accounting information can constrain the inefficiency investment at the enterprise level in financing process; Second, High quality accounting information can reduce information asymmetric and contractual incompleteness, ensure optimum allocation and effective implementation of corporate control rights, supervise and incentive of the mangers, board of directors and staff in enterprise, thus constrain the inefficiency investment behavior of agents who intend to maximize their self-interest.(2) Political connection of the private companies may increase the overinvestment behaviors of companies. On the one hand, the private companies could obtain much more benefit according to political connection, such as financing convenience, tax incentives and so on, all these factors could help the company to get the investment funds, extend the investment fields, which will lead to the overinvestment behavior easily. On the other hand, the private companies have to obtain the benefit from government at the cost of assisting the government in achieving the political goal, which also increase the possibility of the overinvestment behaviors. The empirical result is basically in line with the hypothesis. That is, the political connection is positively correlated with overinvestment behavior of company, but not significant. Detailed explanations are given in this part.(3) Except the direct influence on the overinvestment behaviors of the private companies, political connection can also affect the overinvestment behaviors indirectly according to weaken the impact from the quality of accounting information.Based on the above results of study, we recommend some constructive suggestion in this thesis.