A Study On Managers’ Political Connection And Ac-Counting Conservatism

Governance characteristic of modern enterprises separation of ownership andcontrol highlights the significant role of managers in decision-making.The upperechelons theory emphasizes the importance of managers’personal characteristics in-fluencing on their decision-making. As one of the basic principles for the accountingrecognition and measurement, accounting conservatism is an important measurementof the quality of accounting information as well as a vital part of managers’ decisions.Based on the background of Chinese low level of accounting conservatism and inferi-or quality of accounting information, the thesis takes the upper echelons theory as aresearch perspective to study on the relationship between managers’political connec-tion and accounting conservatism.The thesis builds theoretical framework of manager’s political connection andaccounting conservatism by analyzing agency theory, contract theory, upper echelonstheory, behavioral consistency theory and reputation theory. The thesis selectes2004-2012A-share private corporations listed in Shanghai and Shenzhen stock marketas research sample, using T test, multiple linear regression, instrumental variables re-gression and intermediate effect inspection to search the relationship of manag-ers’political connection and accounting conservatism and the conductions amongmanagers’political connection, contract and accounting conservatism. The results ofthe thesis show that members of People’s Congress(PC) and Chinese People’s Polit-ical Consultative Conference(CPPCC) connection significantly reduces the account-ing conservatism and with the increase of the PC and CPPCC level the accountingconservatism level is further reduced, government officials connection has no sig-nificant impact on the accounting conservatism and debt contract and tax contractplayed a partial intermediary role on the managers’political connection and account-ing conservatism. Finally the thesis proposes recommendations as improving infor-mation disclosure system, establishing internal and external constraints, constructing areasonable manager hiring and evalution system, and accelerating the construction ofmarket-oriented based on the research findings.The thesis is based on the institutional background of Chinese transition econo-my. The finding of the negative impact of managers’political connection and ac-counting conservatism has enriched the factors research of accounting conservatismand the upper echelons theory as well as behavioral consistency theory to a certainextent, and also provides evidence to relieve the agency problems and enhance the corportates’accounting conservatism level.