Political Hypotheses (Political Costs) and Financial Reporting Quality: Empirical Evidence from Tehran Stock Exchange

Abstract

Using structural equation modeling approach, this research aims to explorethe effect of political costs on financial reporting quality. For this purpose,66 publicly-listed firms from Tehran Stock Exchange for the period 2006 to2014 were selected as the final data set. As an independent variable, theobservable variables such as capital intensity, concentrate rate, tax ratio, firmsize, employee intensity, and risk were used to proxy the political cost. Inaddition, quality of accruals, disclosure quality, earnings persistence, andaccuracy of financial information were used to measure financial reportingquality which is dependent variable and growth opportunities and leveragewere considered as control variables. The results indicated that political costshad a negative and meaningful effect on financial reporting quality.

Keywords

• political hypotheses
• political costs
• financial reporting quality
• structural equation modeling approach ∗