The Relationship Between Political Connection And Listed Companies’ Violations

Listed companies, as the new form in the China’s stock market, appeared in the1990s. Because listed companies t can make profit by taking advantage of the capitalmarket, people will pay much more attention to their behaviors, especially theinformation disclosure. However, the occurrence of listed companies’ violationsseriously infringe the interests of small investors, which would not only weakeninvestors’ confidence in the capital markets, but also more likely to affect the healthydevelopment of the capital market. From a new perspective, this article studies theimpacts of political associations on violations of listed companies in China, which hasa certain academic and practical significance.This article studies the impacts political associations of directors on violations ofA-share listed companies in China with the data from2004to2010, meanwhile, wehave controlled the size of the board, the proportion of independent directors, auditcommittee and the company’s financial indicators,such as earnings per share andother variables. During the empirical process, this paper uses the descriptive statistics,and examines the relevance and multicollinearity between the independent variablesas well. On this basis, this paper uses the OLS regression model to solve the violationproblem. In order to further examine the reasonableness of the equation, this papercarried out the operation on the data to eliminate heteroscedasticity. Eventually we getthe regression model without the heteroscedasticity.The empirical findings are as follows:(1) Directors’ political associations oflisted companies inhibit the possibility of companies’ violation, which means “thestronger political associations, the smaller violations”.(2) When we divide thedirectors into executive directors and independent directors, we find that executivedirectors who own the political background will motivate companies’ violations,while the independent directors with political background will reduce this behavior.(3)From the view of controlled variables, we find that the Audit Committee did not playthe oversight role. On the contrary, audit committees of listed companies increased thelikelihood of non-compliance. But the earnings of per share will inhibit the violation,which means the better financial condition of the listed companies, the less likelyviolation of the listed companies.