Political connection and earnings quality

Abstract

Researchers suspect that there exist political connections which provide advantages and allows politically connected firms to gain extra benefits than non-connected firms or exploit the connections to maximize their profits. This thesis isolated the quality of accounting information and market reaction toward earnings announcement to see whether they are affected by political connection. By employing accrual method to study the relationship between political connections and the quality of accounting information in terms of earnings of the firms listed on the Stock Exchange of Thailand during 2000-2008, the paper reported that political connection causes the quality of earnings to be lower in comparison to non-connected firms while political connection provides benefit in terms of having a lower cost of debt and found that connected firms have an overall lower cost of debt. Finally, we found that connected and non-connected firms have similar pattern of market reaction towards earnings announcement.