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Title: Political corruption and accounting choices
Authors: Zhang, Huai
Zhang, Jin
Keywords: Business::Accounting
Issue Date: 2022
Source: Zhang, H. & Zhang, J. (2022). Political corruption and accounting choices. Journal of Business Finance & Accounting.
Project: RG163/17
Journal: Journal of Business Finance & Accounting
Abstract: We examine how political corruption affects firms’ accounting choices. We hypothesize and find that firms headquartered in corrupt districts manipulate earnings downwards, relative to firms headquartered elsewhere. Our finding is robust to alternative corruption measures, alternative discretionary accrual measures, alternative model specifications, the instrumental variable approach and difference-in-differences analyses based on firm relocation and high profile cases. We find that firms headquartered in corrupt districts prefer income-decreasing accounting choices and exhibit higher conservatism. Finally, we find that the effect of corruption on earnings management is more pronounced for geographically concentrated firms, for firms without political connections, for firms in politically sensitive industries, for firms with lower transient institutional investor ownership and for firms with less analyst coverage. In sum, our findings suggest that firms respond to corruption by lowering their accounting earnings.
ISSN: 0306-686X
DOI: 10.1111/jbfa.12646
Schools: Nanyang Business School 
Rights: © 2022 John Wiley & Sons Ltd. All rights reserved. This is the peer reviewed version of the following article: Zhang, H. & Zhang, J. (2022). Political corruption and accounting choices. Journal of Business Finance & Accounting, which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Fulltext Permission: embargo_20240823
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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