Political Connections and Accounting Quality Under High Expropriation Risk

57 Pages Posted: 19 Feb 2014  

George E. Batta

Claremont McKenna College - Robert Day School of Economics and Finance

Ricardo Sucre Heredia

Central University of Venezuela (UCV)

Marc Weidenmier

Claremont McKenna College - Robert Day School of Economics and Finance; National Bureau of Economic Research (NBER)

Date Written: February 17, 2014

Abstract

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

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

George E. Batta (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth Street
Claremont, CA 91711
United States

Ricardo Sucre Heredia

Central University of Venezuela (UCV) ( email )

University City
Los Chaguaramos
Caracas, 1050
Venezuela

Marc D. Weidenmier

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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