Political Connections and Earnings Quality: Evidence from India

21 Pages Posted: 25 Nov 2013

See all articles by R. Narayanaswamy

R. Narayanaswamy

Indian Institute of Management (IIMB), Bangalore

Date Written: November 25, 2013

Abstract

This paper investigates the association between political connections and earnings quality in Indian companies. Recent corporate scandals (e.g., 2G mobile phone licences, coal block allocations, iron ore and granite mining licences) have underlined the political connectedness of Indian business entities. The increasing role of the private corporate sector in the economy in the wake of the economic liberalization has strengthened the traditional links between business organizations and the political system. The involvement of politicians in business and of business organizations in politics, the participation of senior civil servants in political and business-related activities and the dependence of political parties on donations from business organizations for funding elections have contributed to the importance of political connections in business. We find that connected firms have lower earnings quality than non-connected firms and are more likely to engage Big Four auditors.

Keywords: political connections, earnings management, India

Suggested Citation

Narayanaswamy, Ramaswami, Political Connections and Earnings Quality: Evidence from India (November 25, 2013). IIM Bangalore Research Paper No. 433, Available at SSRN: https://ssrn.com/abstract=2359322 or http://dx.doi.org/10.2139/ssrn.2359322

Ramaswami Narayanaswamy (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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