Political corruption and accounting choices
We examine how political corruption affects firms’ accounting choices. We hypothesize and find that firms headquartered in corrupt districts manipulate earnings downwards, relative to firms headquartered elsewhere. Our finding is robust to alternative corruption measures, alternative discretionary a...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Journal Article |
| Language: | English |
| Published: |
2022
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| Online Access: | https://hdl.handle.net/10356/162885 |
| _version_ | 1824455676691218432 |
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| author | Zhang, Huai Zhang, Jin |
| author2 | Nanyang Business School |
| author_facet | Nanyang Business School Zhang, Huai Zhang, Jin |
| author_sort | Zhang, Huai |
| collection | NTU |
| description | We examine how political corruption affects firms’ accounting choices. We hypothesize and find that firms headquartered in corrupt districts manipulate earnings downwards, relative to firms headquartered elsewhere. Our finding is robust to alternative corruption measures, alternative discretionary accrual measures, alternative model specifications, the instrumental variable approach and difference-in-differences analyses based on firm relocation and high profile cases. We find that firms headquartered in corrupt districts prefer income-decreasing accounting choices and exhibit higher conservatism. Finally, we find that the effect of corruption on earnings management is more pronounced for geographically concentrated firms, for firms without political connections, for firms in politically sensitive industries, for firms with lower transient institutional investor ownership and for firms with less analyst coverage. In sum, our findings suggest that firms respond to corruption by lowering their accounting earnings. |
| first_indexed | 2025-02-19T03:42:00Z |
| format | Journal Article |
| id | ntu-10356/162885 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2025-02-19T03:42:00Z |
| publishDate | 2022 |
| record_format | dspace |
| spelling | ntu-10356/1628852023-05-19T07:31:18Z Political corruption and accounting choices Zhang, Huai Zhang, Jin Nanyang Business School Business::Accounting Accounting Choices Political Corruption We examine how political corruption affects firms’ accounting choices. We hypothesize and find that firms headquartered in corrupt districts manipulate earnings downwards, relative to firms headquartered elsewhere. Our finding is robust to alternative corruption measures, alternative discretionary accrual measures, alternative model specifications, the instrumental variable approach and difference-in-differences analyses based on firm relocation and high profile cases. We find that firms headquartered in corrupt districts prefer income-decreasing accounting choices and exhibit higher conservatism. Finally, we find that the effect of corruption on earnings management is more pronounced for geographically concentrated firms, for firms without political connections, for firms in politically sensitive industries, for firms with lower transient institutional investor ownership and for firms with less analyst coverage. In sum, our findings suggest that firms respond to corruption by lowering their accounting earnings. Ministry of Education (MOE) Submitted/Accepted version Zhang acknowledges the financial support from the National Natural Science Foundation of China (71572038, 71872046, 71872078) and Singapore Ministry of Education (RG163/17). 2022-11-11T07:08:01Z 2022-11-11T07:08:01Z 2022 Journal Article Zhang, H. & Zhang, J. (2022). Political corruption and accounting choices. Journal of Business Finance & Accounting. https://dx.doi.org/10.1111/jbfa.12646 0306-686X https://hdl.handle.net/10356/162885 10.1111/jbfa.12646 2-s2.0-85137249317 en RG163/17 Journal of Business Finance & Accounting © 2022 John Wiley & Sons Ltd. All rights reserved. This is the peer reviewed version of the following article: Zhang, H. & Zhang, J. (2022). Political corruption and accounting choices. Journal of Business Finance & Accounting, which has been published in final form at https://doi.org/10.1111/jbfa.12646. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. application/pdf |
| spellingShingle | Business::Accounting Accounting Choices Political Corruption Zhang, Huai Zhang, Jin Political corruption and accounting choices |
| title | Political corruption and accounting choices |
| title_full | Political corruption and accounting choices |
| title_fullStr | Political corruption and accounting choices |
| title_full_unstemmed | Political corruption and accounting choices |
| title_short | Political corruption and accounting choices |
| title_sort | political corruption and accounting choices |
| topic | Business::Accounting Accounting Choices Political Corruption |
| url | https://hdl.handle.net/10356/162885 |
| work_keys_str_mv | AT zhanghuai politicalcorruptionandaccountingchoices AT zhangjin politicalcorruptionandaccountingchoices |