Publication Type
Conference Paper
Publication Date
6-2018
Abstract
Using aninternational sample of firms from 28 countries, we document that there existsa negative relationship between political connections and the informativenessof stock price, as measured by idiosyncratic volatility (IV). This finding isrobust to alternative regression specifications, sub-samples analyses, andconcerns related to endogeneity. A more detailed analysis shows that out of thedifferent types of possible connections, the connectedness of the owners is theprimary driver of this result. Further, the negative association is onlysignificant for firms in countries characterized by low institutional quality(i.e. corrupted countries, countries with low access to external equitymarkets, and countries with low media penetration). There is no evidence of anyrelation between political connections and stock price informativeness forfirms in countries characterized by high institutional quality. Overall, our results show that although politicalconnections exacerbate rent-seeking that weaken the firms’ informationenvironments on average, the negative information consequences are compensatedby the countries’ institutional quality.
Keywords
Political connections, Idiosyncratic volatility, Institutional infrastructure.
Discipline
Accounting
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
European Accounting Association 41st Annual Congress, Milan, 2018 May 30 - June 1
Publisher
Sweet and Maxwell
City or Country
Italy
Citation
KUSNADI, Yuanto and SRINIDHI, Bin.
Cross-country differences in the effect of political connections on stock price informativeness. (2018). European Accounting Association 41st Annual Congress, Milan, 2018 May 30 - June 1.
Available at: https://ink.library.smu.edu.sg/soa_research/1780
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.