Publication Type

Journal Article

Version

submittedVersion

Publication Date

8-2020

Abstract

Using an international sample of firms from 28 countries, we document that there exists a negative relationship between political connections and the informativeness of stock price, as measured by idiosyncratic volatility (IV). This finding is robust to alternative regression specifications, sub-samples analyses, and concerns related to endogeneity. A more detailed analysis shows that out of the different types of possible connections, the connectedness of the owners is the primary driver of this result. Further, the negative association is only significant for firms in countries characterized by low institutional quality (corrupted countries, countries with low access to external equity markets, and countries with low media penetration). There is no evidence of any relation between political connections and stock price informativeness for firms in countries characterized by high institutional quality. Overall, our results show that although political connections exacerbate rent-seeking that weaken the firms' information environment on average, the negative information consequences are compensated by the countries' institutional quality.

Keywords

Political connections, Idiosyncratic volatility, Institutional infrastructure

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Contemporary Accounting and Economics

Volume

16

Issue

2

First Page

1

Last Page

20

ISSN

1815-5669

Identifier

10.1016/j.jcae.2020.100203

Publisher

Elsevier

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1016/j.jcae.2020.100203

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