The Relationship Between The Business Environment Of Private Enterprises, The Relationship Between The Political Control Of The Actual Controller And The Choice Of Auditors

Under the condition economic transformation of China, the government’s influence on the market should not be ignored. The study of the relationship between government and enterprises has important significance. Along with the rapid development of our market economy, private economy has become an important part of the social economy and received more national attention and recognition. Private entrepreneurs are not only in economic field plays a more and more important role, its social and political status has been improved. Private entrepreneurs have widely participated in politics. China has initially established a market economy, but it is still a typical transition economies. The level of economic development and the rule of law in each area is very uneven. Enterprise management environment around the difference area is obvious. The uncertainty of the environment will bring the business risks and constraints. When in area where the government administrative ability is weak, legal environment is poor, intermediary organizations and technical services is imperfect private enterprises have more motive seeking to establish a link between politics, in order to escape development constraints, and risks which is carried to the enterprise by the inadequacy of formal institutional environment. Political identity of private entrepreneurs is the reputation of a specific resource, can have the effect of signal transmission, enhancing investors’ confidence, and enhancing the discipline of business motivation, prompting them to choose high quality auditors, it is not only beneficial to the strengthen enterprise internal management can also with the help of a large firm reputation to make the further enhancement of the signals to the market. This is because the high quality audit can reduce agency cost, to play the role of a supervision mechanism, can also with the help of auditor reputation to convey to the investors, enterprise beneficial information, play the role of signal mechanism. But effective play to these functions, enterprise management environment and the influence of political association role, enterprise in choosing accounting firm, will also be affected by a good business environment. In the government administrative ability, good legal environment, intermediary organizations and perfect technical service, social integrity of the actual controllers have a political association of private enterprises have more incentive to choose high quality auditors. Existing research more focus on the influence of political association of enterprise value and the selection of accounting firms influence factors, and study more about the link political is an object with the general manager or the chairman, on enterprise management environment, the political relationship between actual controllers, the mutual influence between accounting firms to choose three research is less, so the research of the relationship between the three has an important significance.First, this paper elaborates the theory of the political connection and accounting firm selection. Then, based on the data of Chinese listed private enterprises from2008to2011, we study the relationship between management environment and actual controllers’ political connections and their impact on accounting firm selection. The results showed that:first, in the areas of poor management environment, companies are more motivated to establish political connections; second, the firms with a politically connected actual controller prefer high-quality audit. High-quality audit can identify and inhibit the company’s earnings management activities. We also find that when choosing the accounting firm, actual controllers’ political connection and the regional environment can be compensatory, that is to say, in the region of poor management conditions, the motivation of companies with politically related actual controllers for choosing high-quality auditor will be enhanced. The results of this study not only enrich the literature of political association but also have some inspiration for the legal construction in China.