Board political connections and tradeoff between market and nonmarket advantages: Evidence from corporate financial information disclosure

Fenglong Xiao, Ann Ling-Ching Chan and Vincent Y.S. Chen

Journal of Business Research, 2023, vol. 164, issue C

Abstract: We explore the extent to which board political connections shape the firm’s disclosure behavior. We focus on the disclosure of non-GAAP earnings measures and argue that board political connections reduce the firm’s propensity to report non-GAAP earnings through two mechanisms: the reduction in capital market pressure (insulating effect) and the concerns about public scrutiny (constraining effect). Our theory is tested and supported by an analysis of U.S.-listed firms in the period 2003-2019. We further exploit the variation in firms’ media exposure to identify the primary mechanism underlying this disclosure strategy and find that the constraining effect plays a more important role than the insulating effect in driving the financial reporting behavior of politically connected firms.

Keywords: Political connections; Board of directors; Financial reporting; Non-GAAP earnings; Media exposure (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:164:y:2023:i:c:s0148296323003077

DOI: 10.1016/j.jbusres.2023.113949

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