Political Connections and Accounting Information Quality: Evidence from Financial Restatement

Abstract

Due to the benefits of political connections and the lower necessity of responding to market pressures to increase information quality by politically connected firms, it is expected that these firms will provide low-quality accounting information. With respect to the extended role of government in the economy of Iran, this study aims to investigate the impact of political connections on the accounting information quality of the firms listed in the Tehran Stock Exchange (TSE). The statistical sample includes 101 listed firms over the 2010-2018 period. Financial restatement and the intensity of financial restatement are used as indicators of the low quality of accounting information. To achieve the research objectives, two hypotheses have been proposed, and to test the hypotheses, the logistic regression and the multiple linear regression analysis in a panel data model were conducted. The results show that political connections have a positive effect on the occurrence and the intensity of financial restatement. Therefore, it seems that the firms' accounting information quality is affected by their political connections.

Keywords

• political connections
• accounting information quality
• financial restatement
• tehran stock exchange