Political Connections and Accounting Quality under High Expropriation Risk

George Batta, Ricardo Sucre Heredia and Marc Weidenmier

European Accounting Review, 2014, vol. 23, issue 4, 485-517

Abstract: We examine the impact of political connections and accounting quality among Venezuelan industrial firms, which face one of the highest levels of expropriation risk worldwide. Based on prior literature, we expect a negative relationship between expropriation risk and accounting quality as firms manage earnings to avoid 'benign' state intervention. We find that politically connected firms have higher accounting quality than non-connected firms, which is consistent with connected firms' lower risk of expropriation due to connections with high-level government officials or ruling party members. The relationship between accounting quality and political connections appears to be strongly moderated by institutional features like expropriation risk.

Date: 2014
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DOI: 10.1080/09638180.2014.906316

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