Political corruption and financial statement disaggregation decisions: The role of corporate culture

Abstract

This study examines the effect of political corruption on firms' financial statement disaggregation over the period of 2002-2022. The authors find that firms located in states with a higher level of political corruption have less disaggregated financial statements. The empirical results suggest that firms tend to increase the opacity of financial statements to prevent financial information from being exposed to corrupt officials. However, corporate culture helps lower the negative impact of political corruption on local firm's financial disaggregation quality. The results remain robust when we carry out several robustness checks to address endogeneity concerns and when we use alternative measures of political corruption.

Keywords: financial statement disaggregation; political corruption; corporate culture.