Please use this identifier to cite or link to this item: http://hdl.handle.net/10553/44202
Title: Politically connected firms and earnings informativeness in the controlling versus minority shareholders context: European evidence
Authors: Bona Sánchez, Carolina 
Pérez Alemán, Jerónimo 
Santana Martín, Domingo Javier 
UNESCO Clasification: 5303 Contabilidad económica
Keywords: Gobierno corporativo
Contabilidad económica
Issue Date: 2014
Publisher: 0964-8410
Journal: Corporate Governance 
Abstract: Manuscript Type: Empirical Research Question/Issue: Focusing on an environment where ownership concentration is prevalent and where the presence of politically connected directors on the board is the natural form of political connection, we analyze the effect of political connections on earnings informativeness. We also examine a question that has not been considered in previous research, namely, the impact of the level of divergence between the dominant owner's voting and cash flow rights on earnings informativeness for politically connected firms. Research Findings/Insights: We find that the presence of politicians on the board negatively affects earnings informativeness. We also find a positive impact of the divergence between the dominant owner's voting and cash flow rights on the informativeness of accounting earnings in politically connected firms. Theoretical/Academic Implications: We show that the relationship between political ties and earnings informativeness is explained by an information effect, whereby politicians and shareholders are interested in providing as little information to the market as possible in order to protect political ties from public scrutiny and prevent the leakage of competitive advantages to competitors. Additionally, we show that the positive effect of divergence between the dominant owner's voting and cash flow rights on earnings informativeness in firms that belong to a pyramid is explained both by an alignment effect, whereby political connections promote transparency, as well as by a stewardship effect, whereby the ultimate owner of the pyramid, acting as a steward, places politicians on the board to increase the firm's reputation and reports earnings in good faith. Practitioner/Policy Implications: The results of our study may be useful to regulators interested in increasing transparency in order to promote a more efficient allocation of resources. In particular, the results suggest that in countries where recent reforms aim to improve investor protection and market confidence, regulators should encourage the disclosure of firm political ties. The results of our study may also be useful to investors, financial analysts and auditors, as they highlight the importance of considering specific features of the corporate governance system when assessing the credibility of accounting information.
URI: http://hdl.handle.net/10553/44202
ISSN: 0964-8410
DOI: 10.1111/corg.12064
Source: Corporate Governance: An International Review[ISSN 0964-8410],v. 22, p. 330-346
URL: http://dialnet.unirioja.es/servlet/articulo?codigo=4762452
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