The Quality of Accounting Information in Politically Connected Firms

Chaney, Paul K.; Faccio, Mara; Parsley, David C.

doi:10.2139/ssrn.966379

Download This Paper

Open PDF in Browser

Add Paper to My Library

The Quality of Accounting Information in Politically Connected Firms

AFA 2010 Atlanta Meetings Paper

48 Pages Posted: 1 Mar 2007 Last revised: 6 Jul 2010

See all articles by Paul K. Chaney

Mara Faccio

Mitchell E. Daniels, Jr. School of Business, Purdue University; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

David C. Parsley

Vanderbilt University – Finance and Economics

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: 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