Corporate Lobbying, Visibility and Accounting Conservatism

Journal of Business Finance and Accounting, Forthcoming.

43 Pages Posted: 2 Mar 2017

See all articles by Xiangting Kong

Xiangting Kong

Center for Accounting, Finance and Institutions/ Business School, Sun Yat-sen University, China

Suresh Radhakrishnan

JSOM, University of Texas at Dallas

Albert Tsang

York University - Schulich School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2017

Abstract

In this study, we examine the relationship between a firm’s lobbying activities and financial reporting quality using a U.S. setting where public scrutiny of corporate political activities is high. More importantly, we examine whether and how a firm’s visibility shapes the relationship between its corporate lobbying activities and accounting conservatism. Adopting annual lobbying expenditure data to measure firms’ lobbying activities, and using a propensity-score-matching methodology to control for differences in firm characteristics between lobbying and non-lobbying firms, we find a positive relationship between a firm’s lobbying intensity and the degree of accounting conservatism in its financial reporting. We further find such positive relationship to be more pronounced in lobbying firms with a higher level of visibility. These results are robust after controlling for a firm’s political connections, across various conditional conservatism measures, and across a number of visibility measures including firm size, the number of analysts following the firm, the age of the firm, the number of foreign stock exchanges that the firm is cross-listed in, and the level of the firm’s media coverage. Together, our findings add to the literature on how firms’ political activities shape their accounting practices in general, and accounting conservatism in particular. More importantly, our findings suggest that the heightened public attention paid to political activities in the U.S. yields incentives for firms to be more conservative in their accounting practices.

Suggested Citation

Kong, Xiangting and Radhakrishnan, Suresh and Tsang, Albert, Corporate Lobbying, Visibility and Accounting Conservatism (March 1, 2017). Journal of Business Finance and Accounting, Forthcoming. . Available at SSRN: https://ssrn.com/abstract=2925894

Xiangting Kong

Center for Accounting, Finance and Institutions/ Business School, Sun Yat-sen University, China ( email )

Guangzhou, Guangdong
China

Suresh Radhakrishnan

JSOM, University of Texas at Dallas ( email )

Mail Stop SM 41
800 West Campbell Road
Richardson, TX 75080
United States
972-883-4438 (Phone)
972-883-6811 (Fax)

Albert Tsang (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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