Empirical Study Of Effects Career-caused Political Connection Of The Management In Private Business Has On Audit Demand

Audit is an important institutional security mechanism in the capital market.High quality audit demand is not only crucial to the effectiveness of exteriorcorporate supervision, but also conducive to the healthy development of the auditmarket. There has been always plenty of researching emphasis centered on this topic,but our domestic research is usually based on the factors of developed markets, andseldom gives any consideration to the impact of non-market forces cast on auditdemand. The political connection between the firm and the government, immenselypervasive among emerging markets, is one of such forces and one of the factors thatinfluence the corporate behavior greatly. Latest study has demonstrated that businesscould manage to get market access, debt finance, tax relief, rare material and othercutting edge in the competition through political connection. Therefore, it will notonly provide new starting point for planning to optimize high quality demand in theaudit market, but also promote quality competition in the audit market, strengthenthe resources allocation role of audit and be conducive to the beneficial circle ofaudit market and capital market, to unfold and test the likely impact of politicalconnection on audit demand.Based on principal-agent theory, asymmetric information theory andrent-seeking theory and combining main audit demand hypothesis, this researchfocuses on the sample of the private enterprise, follows the origin of politicalconnection from the point of its management’s career and tries to analyze anddiscuss the impact on audit demand theoretically. Next during the positive testingprocess, we have collected and sorted the data from2009to2010, the merger yearsof accounting firms, and the political connection information by reading the annualreport manually; we then estimate the cause of political connection and its impact onauditor choice by a multiple regression model. Through our empirical analysis, theregression model provides strong evidence that market institution environment isnegatively correlated with political connection, and political connection isnegatively correlated with both auditor choice, which firmly suggests that the lack ofmarket institution is the main reason leading to political connection, and once suchconnection establishes, poor audit demand results. Finally, according to our positiveand earlier theoretical analysis, we bring out two core improvement solutions to strengthen the high quality audit demand in the audit market. One suggestion is toadvance market reform more deeply and limit government intervention more strictly,and the other one is to keep encouraging mergers between accounting firms andimpose more intense supervision in the industry.