Political connections, family firms and earnings quality

Abstract

Purpose-This paper aims to investigate the effect of political connections on earnings quality by simultaneously controlling the firm characteristics; to test whether Pakistani firms' ownership, specifically family ownership, plays a significant role in political connections-earnings quality association; to draw a conclusion about the agency theory in the context of Pakistan.

Impact of Ownership Characteristics on Modified Audit Opinion in Jordan

“…Conversely, the direction of impact was negative, and this result suggests that an increase in the percentage of FAOWN in the corporate will increase the quality of financial reporting and, in turn, reduce the probability of corporate obtaining a modified audit opinion. This result is in agreement with the results of the earlier studies found that the family control had a significant and negative moderating influence on the relationship between the efficacy of board of directors and corporate performance [77,5,99]. However, it is not consistence with results obtained by Makhlouf, Ali and Ramli who discovered a positive and significant association between family control and the type of CPA opinion [100].…”

“…Opposing these results, Jiraporn and DaDalt discovered a negative and significant relationship between FAOWN and quality of financial reporting [76]. Hashmi, Brahmana and Lau revealed a negative and statistically significant between the quality of financial reporting and FAOWN [77]. Low and Majid determined that the association between family business and modified audit opinion is negative, suggesting that family-controlled firms are less probably to obtain modified audit opinions than non-family firms.…”

“…Hence, supervising managerial decisions becomes important to ensure that the interests of stakeholders are secure and to safeguard reliable and comprehensive financial reporting [78]. Agency theory indicates that supervising by INOWN can be essential governance structures or characteristics [78,77,5]. Main stakeholders such as institutional stakeholders can impact agency costs, the efficacy of supervising managers and corporate performance because of the substantial assets that they have and because of their capability to access relevant obtainable facts.…”

“…Furthermore, institutional shareholders have the prospect, resources, and capability to supervise managers. Consequently, INOWN is related with better monitoring of management activities, decreasing the capacity of managers to deviously influence earnings [77], because institutional owners offer effective supervising of management in the process of financial reporting. Yasser, Mamun and Hook revealed that INOWN can play an active role in supervising and castigating managerial decision and in controlling the reporting process [6].…”

Impact of Corporate Political Connections on Cost of Equity: A Dynamic Panel Approach

“…Moreover, our findings reveal that an increase in cash flow from operations leads to a decrease in their cost of equity. This negative impact is in line with the findings of Hashmi et al (2018). Our results demonstrate that politically connected firms with large size have a lower cost of equity financing, consistent with the work of Claessens et al (2008), find that large politically connected firms have more diversified activities, better disclosures, less risk to default, and consequently lower cost of equity financing.…”