Study On Political Connections, Government Audit Quality And Corporate Performance

According to the formation of political connection, it can be divided into two category, they are innate political connection (SOEs equity political connection) and acquired political connection (executives’political connection). In our country, the listed companies which either have innate political connection or have executives’political connection accounted for the vast majority of all companies. According to my statistics, about48%of A-share listed companies were state-owned companies, and about50%of A-share listed companies’executives had political connection from2008to2010. So it is necessary to study on the relationship between the political connection and the corporates’performance. There were many scholars who have studied this question, but they drew inconsistent conclusions, including a positive correlation (e.g. Wenfeng Wu, Chongfeng Wu et al,2008; Danglun Luo, Qiongyu Huang,2008; Shuaishuai Liu,2013, etc.) and a negative correlation (e.g. Changhong Ni, Guoqing Zou,2010; Weian Li, Aichao Qiu,2010, etc.). Recent studies have noted that the institutional environment may influence political connection’s effect on corporate performance, and therefore added Fan Gang index-a measure of the macro environment as control variables when researching on the relationship between the two. Taking into account of that the executives’ behavior who have political connection are the important factor which affect the corporate performance, this paper believe that government audit quality, a more microscopic environment, is one of the important factors of political connection corporates’ performance. Up to now, no one has considered the impact of government audit quality on the political connection corporates’ performance. In addition, the existing research on the performance of state-owned enterprises focused on the impact of innate political connection, and rarely research on the executives’ political connection. Therefore, the paper believes that in order to obtain a more objective conclusion on the relationship between politics connection and corporate performance, more in-depth research should be done.In this paper, A-share listed companies from2008to2010are used as samples. We studied the relationship between political connections and corporate performance under different conditions. Firstly, without considering the nature and quality of government audit, we study the impact of executives’political connection on corporate performance; then, we study the impact of corporate nature and institutional environment on corporate performance with political connection; finally, based on theoretical analysis and empirical results, we present countermeasures to improve business performance. As to the novelty of this paper, it not only studies the impact of the executives’political connection on corporate performance with different corporate nature, but also reveals the impact of government audit quality on corporate performance with executives’ political connection.The results show that:(1) without considering the nature of companies and government audit quality, the degree of executives’political connection and the corporate performance are significantly and positively correlated. The executives’political connection can bring resources for the development of enterprises, resulting in a positive impact on corporate performance;(2) without considering the government audit quality, state-owned equity political association reduce the corporate performance, and executives’ political association in state-owned companies play a more important role on the corporate performance than executives’political association in private enterprises;(3) when considering government audit quality, the higher the government audit quality, the more obvious relationship between executives’political connection and corporate performance, which suggest that only in the lower government audit quality areas, political connection’ advantage of access to resources can show up. In addition, high government audit quality can improve the equality political connections’ damaging effects on corporate performance.(4) Subsequent examination of this paper Correctings that only in the lower government audit quality areas, corporate executives’political connection can get financing, government grants advantages and tax benefits.Based on the conclusions of this paper, the impact of political connections on firm performance are both positive and negative in the same period, and the final result depends on which force is more powerful. The power of these two forces depends on the company’s environment. Therefore, this paper suggests that companies should not blindly try to establish political connections to improve corporate performance and to improve the quality of government audit can improve the living environment of political connection companies, optimize the allocation of resources, and promote the healthy development of enterprises.