Do Political Connections Affect the Conservative Financial Reporting of Family Firms?

Hsin-Yi Chi, Tzu-Ching Weng, Guang-Zheng Chen and Shu-Ping Chen
Additional contact information
Hsin-Yi Chi: Department of Accounting, National Chung Hsing University, No. 250, Kuokuang Rd., Taichung City 402, Taiwan
Tzu-Ching Weng: Department of Accounting, Feng Chia University, No. 100, Wenhwa Rd., Taichung City 407, Taiwan
Guang-Zheng Chen: Department of Accounting, Feng Chia University, No. 100, Wenhwa Rd., Taichung City 407, Taiwan
Shu-Ping Chen: Department of Business Administration, National Chung Hsing University, No. 250, Kuokuang Rd., Taichung City 402, Taiwan

Sustainability, 2019, vol. 11, issue 20, 1-20

Abstract: This paper investigates the effect of political connections on the association between family firms and conservative financial reporting. While family firms have incentives to reduce agency and litigation-related costs by means of conservative reporting, firms with political connections tend to have opaque financial reporting, which enable them to engage in rent-seeking activities. Using data for Taiwanese listed firms between 1996 and 2012, the final sample observations were 13,877 firm-year observations from a population of 21,393 firm-year observations. We found that political connections weaken the positive relationship between family ownership and conservative financial reporting. This suggests that politically connected family firms make fewer demands for conservative financial reporting. This study contributes to the literature on how political connections affect the family owners’ reporting incentives. Policy makers may consider political connections as an essential factor with respect to establishing governance practice in family firms.

Keywords: conservative financial reporting; corporate governance; family control; political connections (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/11/20/5563/pdf (application/pdf)
https://www.mdpi.com/2071-1050/11/20/5563/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:20:p:5563-:d:274694

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().