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The Quality of Accounting Information in Politically Connected Firms

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  • Chaney, Paul
  • Faccio, Mara
  • Parsley, David

Abstract

We document that the quality of earnings reported by politically connected firms is significantly poorer than that of similar non-connected companies. Moreover, we find that earnings quality has no predictive power for the likelihood of establishing connections. Hence, we rule out that our results (on average) are simply 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.

Suggested Citation

  • Chaney, Paul & Faccio, Mara & Parsley, David, 2009. "The Quality of Accounting Information in Politically Connected Firms," MPRA Paper 21116, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:21116
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    More about this item

    Keywords

    political Ties; information quality;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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