Political Uncertainty and Accounting Conservatism

European Accounting Review, Forthcoming

58 Pages Posted: 4 Jan 2013 Last revised: 21 Apr 2020

See all articles by Lili Dai

Lili Dai

University of New South Wales (UNSW)

Phong T. H. Ngo

Australian National University (ANU)

Date Written: April 20, 2020

Abstract

Political uncertainty leads to greater information asymmetry among contracting parties to the firm, resulting in an increased demand for accounting conservatism. Exploiting the exogenous variation in political uncertainty induced by the U.S. gubernatorial election cycle over the period 1963-2016, we find that the asymmetric timeliness of news recognition increases with political uncertainty. Our political uncertainty hypothesis operates through the contracting demand channel. Accordingly, we find that the political uncertainty effect is more pronounced for firms in states with lower electoral participation, for firms with greater industry exposures to contracting needs, for firms with higher leverage and lower managerial ownership, and for firms with stronger internal corporate governance mechanisms.

Keywords: Accounting conservatism; Political uncertainty; Contracting demand

JEL Classification: M41, G38

Suggested Citation

Dai, Lili and Ngo, Phong T. H., Political Uncertainty and Accounting Conservatism (April 20, 2020). European Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2196224 or http://dx.doi.org/10.2139/ssrn.2196224

Lili Dai

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

HOME PAGE: http://sites.google.com/site/ldaiprofile

Phong T. H. Ngo (Contact Author)

Australian National University (ANU) ( email )

RSFAS, College of Business and Economics
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 1079 (Phone)

HOME PAGE: http://cbe.anu.edu.au/people/rsfas/phong-ngo/

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