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

Included in

Accounting Commons

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