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Political connections, tacit power and corporate misconduct

Author

Listed:
  • Matthew McCarten
  • Ivan Diaz‐Rainey
  • Helen Roberts
  • Eric K. M. Tan

Abstract

This paper examines the impact of political connections (i.e., lobbying and political contributions) on the time it takes to detect corporate misconduct and the size of penalties following securities class actions (SCAs), restatements and Accounting and Auditing Enforcement Releases (AAERs). We find firms with political connections exhibit longer misconduct periods for SCAs, and such ability to conceal misconduct for longer translates into a larger settlement size. In addition, we find politically connected firms are associated with greater shareholder losses and are less likely to be involved in Securities Exchange Commission enforcement actions on restatements. Finally, while we do not find any relation between political connections and the likelihood of AAERs being settled, we find political connections are associated with lower AAER settlement size.

Suggested Citation

  • Matthew McCarten & Ivan Diaz‐Rainey & Helen Roberts & Eric K. M. Tan, 2022. "Political connections, tacit power and corporate misconduct," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(9-10), pages 1530-1552, October.
    • Handle: RePEc:bla:jbfnac:v:49:y:2022:i:9-10:p:1530-1552
    DOI: 10.1111/jbfa.12603
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    References listed on IDEAS

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