State street, west lafayette, in 47907, usa article info article history. Jun 24, 2010 fourth, chaney, faccio, and parsley 2007 show that the quality of accounting information is significantly worse for politically connected firms than for their non connected counterparts, and that firms with stronger political connections have the worst quality accounting information. In particular, lower quality reported earnings is associated with a higher cost of debt only for the nonpolitically connected firms in. Expropriation of minority shareholders in politically. Political connections and earnings quality, international.
In addition, this research also measures the effects of ownership structure, performance, size, and market value of the firms to foreign share. Political connections and the cost of equity capital. In return, politicallyconnected firms get access to profitable. The studys results are including the political connection is significantly positive associated with the leverage of the connected firms compare to those not connected. In particular, lower quality reported earnings is associated with a higher cost of debt only for the nonpolitically connected firms in the sample. The quality of accounting information in politically connected firms with paul k. In malaysia, firms operating in an open market are subject to substantial political. The quality of accounting information in politically connected firms article pdf available in ssrn electronic journal 511.
Politically connected firms in this research are divided into politically connected winning firms jokowis party and politically connected losing firms prabowos party. Corporate political connections, agency costs and audit quality. Political connections between firms and autocratic regimes are not secret and often even publicly displayed in many developing economies. The first chapter explores why firms seek these political. Our results are not due to firms with exante poor earnings. Succession of family firms and accounting conservatism.
The characteristics of politically connected firms this section studies the characteristics of connected firms, in terms of i leverage, ii tax ation, iii market power, iv accounting performance, and v marketto book rati o. The qualityofaccountinginformationinpoliticallyconnected. The studys results are including the political connection is significantly positive associated with the leverage of the. Highlevel politically connected firms, corruption, and analyst forecast accuracy around the world. After controlling for several firmand countrylevel determinants, our results show that politically connected firms have a lower cost of equity capital than their nonconnected peers. This evidence suggests that managers of connected firms appear to be less sensitive to market pressures to increase the quality of information. Are independent commissioners able to mitigate higher audit.
Politicallyconnected private equity firms are more likely to boost employment at target firms following a buyout. The purpose of this study is to investigate how the earnings quality of politically connected firms is affected by changes in political stability and government effectiveness in a developing country. Chen, j, h hong and jc stein 2001 forecasting crashes. Interestingly, when we include stateowned enterprise soe as politically connected firms, we find that the quality of accounting earnings. Previous research has found that there are costs associated with lower quality accounting information. The quality of accounting information in politically connected firms p aul k. Motivation motivation leuz 2006 finds a positive association between.
Political connections, corporate governance, and the cost. In other words, as long as their connections are maintaining their power, most likely, these politically connected firms did not need to worry about their sustainability. After the fall of suharto, a shred of hope has appeared for the non politically connected firm. Trading volume, past returns, and conditional skewness in. Our results are robust to alternative measures and proxies for the cost of equity capital. As previous studies have revealed how politically influenced firms acquire political gains through their. Political connections and earnings quality political connections and earnings quality harymawan, iman.
Chaneya, mara facciob,n, david parsleya a owen graduate school of management, vanderbilt university, tn, usa b krannert school of management, purdue university, 403w. Empirically, we find that the quality of earnings reported by politically connected firms is significantly poorer than that of similar nonconnected companies. We argue that tying a firms available rent to a regimes survival acts as a credible commitment forcing entrepreneurs to support the government and to exert effort in its stabilization. In particular, lower quality reported earnings is associated with a higher cost of debt only for the non politically connected firms in. Politically connected firms are more opaque and disclose limited information in order to protect themselves from public scrutiny and prevent the leakage of competitive advantages to competitors. Highlevel politically connected firms, corruption, and. In particular, we provide evidence that lower quality reported earnings is associated with a higher cost of debt only for the nonpolitically connected firms in the sample. Pdf the quality of accounting information in politically. The quality of accounting information in politically connected. Our results are not due to firms with exante poor earnings quality establishing connections more often. The quality of accounting information in politically connected firms. International journal of accounting and information management, 244, pp. Mar 01, 2007 our results are not due to firms with exante poor earnings quality establishing connections more often.
Additionally, among connected firms, those that have stronger political ties have the poorest accruals quality. The quality of accounting information in politically. Essays on politically connected firms ubc library open. Chaney, k, m faccio and d parsley 2011 the quality of accounting information in politically connected firms. Jul 06, 2010 the quality of accounting information in politically connected firms article pdf available in ssrn electronic journal 511. We document that the quality of earnings reported by politically connected firms is significantly poorer than that of similar nonconnected companies. How do connected firms respond to changes in political stability and government effectiveness. This thesis explores a number of issues related to politically connected firms in two separate chapters. Gergana tsoncheva introduction high quality accounting information is of key importance for a large number of users, as it influences the quality of the decisions made. The quality of accounting earnings and change in political. This choice seems to be justified in that lower quality reported earnings is associated with higher cost of debt only. The economics of politicallyconnected firms springerlink. Chen and yuan ding and chansog kim, journaljournal of international business studies. This choice seems to be justified in that lower quality reported earnings is associated with higher cost of debt only for the non politically connected firms in the sample.
The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. We document that the quality of earnings reported by politically connected firms is significantly poorer than that of similar non connected companies. Political influence on financial reporting quality of. First, insiders of connected firms could hide, obscure or delay reporting the benefits received with the intention of misleading investors. This study find that firm with political connections is associated with a lower quality of accounting earnings. The effects of politically connected outside directors on. Trading volume, past returns, and conditional skewness in stock prices. In this paper, we examine the cost of equity capital for politically connected firms.
May 31, 2008 political connections between firms and autocratic regimes are not secret and often even publicly displayed in many developing economies. Stock recommendations for politically connected firms. This choice seems to be justified in that lower quality reported earnings is associated with higher cost of debt only for the nonpolitically connected firms in the sample. I also found that connected firms in indonesia have a longer audit report which commonly due to tunneling through related party transactions, therefore the auditor assessed that there is a higher risk related to those firms so that more efforts are needed in the audit process. Providing high quality and useful accounting information is a prerequisite for the efficiency of the enterprise. Quality of information accruals quality political ties abstract we document that the quality of earnings reported by politically connected. Oct 03, 2016 results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. P arsley recent studies have documented systematic exchanges of favors between politicians and firms, and that connected firms, on average gain from political ties. Designmethodologyapproach this study uses a sample of 2,073 firmyear observations from 349 firms listed on the indonesian stock exchange from 2003 to 2012 to examine how political stability and government effectiveness affect the earnings quality of politically connected firms, relative to non politically connected firms. I also show that for firms that have political connections, analysts earnings. Our results are consistent with this finding, but with a twist. Vanderbilt university accounting, purdue university krannert school of management and vanderbilt university. Chaney, mara faccio and david parsley presented by andreas vernando 371675 161.
Using data of listed family firms and based on the multivariable regression model, this paper studies the changes in the quality of accounting information of family firms during the succession period as well as the regulating effect of successor characteristic variableseducational level on the relation between succession and accounting conservatism. In particular, lower quality reported earnings is associated with a higher cost of debt only for the non politically connected firms in the sample. Using listed firms with audit committees in the korea composite stock price index kospi market, we find that firms with a politically connected audit committee have higher earnings quality than those without such connections. Chaney, mara faccio and david parsley presented by andreas vernando 371675 161 motivation motivation leuz 2006 finds a positive association between ownership concentration and earnings management. Parsley, journal of accounting and economics, february 2011, vol. Politically connected audit committees, earnings quality. This study uses a sample of 2,073 firmyear observations from 349 firms listed on the indonesian stock exchange from 2003 to 2012 to examine how political stability and government effectiveness affect the earnings quality of politically connected firms, relative to nonpolitically connected firms. Moreover, we find that earnings quality has no predictive. Instead, our results suggest that, because of a lesser need to respond to market pressures to increase the quality of information, connected companies can afford disclosing lower quality accounting information. To emphasize this evidence, we empirically analyzed the panel data of the period 201120. After the fall of suharto, a shred of hope has appeared for the nonpolitically connected firm.
Aug 28, 2017 using listed firms with audit committees in the korea composite stock price index kospi market, we find that firms with a politically connected audit committee have higher earnings quality than those without such connections. Institutional investors monitoring and stock price crash. Mpra paper from university library of munich, germany. Politically connected audit committees, earnings quality and. The quality of accounting information in politically connected firms paul k. Political connections, corporate governance, and the cost of. Interestingly, when we include stateowned enterprise soe as politically connected firms, we find that the quality of accounting earnings of politically connected firms is become higher. Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. Oct 03, 2016 political connections and earnings quality political connections and earnings quality harymawan, iman. Parsley february 4, 2007 recent studies have documented systematic exchanges of favors between politicians and firms, and.
However, this poor accounting quality does not necessarily lead to high cost of debt, even though this is true for non. Among these, chaney, faccio, and parsley 2011 document that accounting quality is lower in politically connected firms than in non connected firms. Recommendations continue to be less profitable for politically connected firms after controlling for the value relevance of earnings and the poor accounting quality of politically connected firms. Paul chaney, mara faccio and david parsley mpra paper from university library of munich, germany. Corporate political connections, agency costs and audit.
Their evidence supports the notion that politically. The purpose of this study is to investigate whether politically connected firms play a significant role in cost of debt financing. In particular, we provide evidence that lower quality reported earnings is associated with a higher cost of debt only for the non politically connected firms in the sample. Are independent commissioners able to mitigate higher. We found that politically connected firms have a negative and significant impact on the cost of debt financing compared to non politically connected firms. Fourth, chaney, faccio, and parsley 2007 show that the quality of accounting information is significantly worse for politically connected firms than for their nonconnected counterparts, and that firms with stronger political connections have the worstquality accounting information. Faccio, the hanna chair in entrepreneurship and professor of finance at the krannert school of management, says the study was born out of the controversy surrounding the growing political influence of private equity firms.
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