48 Pages Posted: 1 Mar 2007 Last revised: 17 Nov 2012
Date Written: July 6, 2010
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
By Mara Faccio