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The Quality of Accounting Information in Politically Connected Firms

48 Pages Posted: 1 Mar 2007 Last revised: 17 Nov 2012

Paul K. Chaney

Vanderbilt University - Accounting

Mara Faccio

Purdue University - Krannert School of Management; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

David C. Parsley

Vanderbilt University - Finance

Date Written: July 6, 2010

Abstract

We document that the quality of earnings reported by politically connected firms is significantly poorer than that of similar non-connected companies. Our results are not due to firms with ex-ante poor earnings quality establishing connections more often. Instead, our results suggest that, because of a lesser need to respond to market pressures to increase the quality of information, connected companies can afford disclosing lower quality accounting information. In particular, lower quality reported earnings is associated with a higher cost of debt only for the non-politically connected firms in the sample.

Keywords: Political connections, information quality, accruals quality

JEL Classification: F30, G30, G32, G34, M41, M43

Suggested Citation

Chaney, Paul K. and Faccio, Mara and Parsley, David C., The Quality of Accounting Information in Politically Connected Firms (July 6, 2010). AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=966379 or http://dx.doi.org/10.2139/ssrn.966379

Paul K. Chaney

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States

Mara Faccio (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

David C. Parsley

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)

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