57 Pages Posted: 19 Feb 2014
Date Written: February 17, 2014
We examine the impact of political connections and accounting quality among Venezuelan industrial firms, which face one of the highest levels of expropriation risk worldwide. Based on prior literature, we expect a negative relationship between expropriation risk and accounting quality as firms manage earnings to avoid 'benign' state intervention. We find that politically connected firms have higher accounting quality than non-connected firms, which is consistent with connected firms' lower risk of expropriation due to connections with high-level government officials or ruling party members. The relationship between accounting quality and political connections appears to be strongly moderated by institutional features like expropriation risk.
Keywords: accounting quality, political connections, expropriation risk, international accounting
JEL Classification: M41, P16, P50
Suggested Citation: Suggested Citation
Batta, George E. and Heredia, Ricardo Sucre and Weidenmier, Marc, Political Connections and Accounting Quality Under High Expropriation Risk (February 17, 2014). European Accounting Review Forthcoming; Claremont McKenna College Robert Day School of Economics and Finance Research Paper. Available at SSRN: https://ssrn.com/abstract=2397471