Earnings persistence, institutional investors monitoring and types of political connections
ISSN: 1321-7348
Article publication date: 20 April 2020
Issue publication date: 5 August 2020
Abstract
Purpose
The purpose of this study is to examine whether institutional investors monitoring attenuate (exacerbate) weaker earnings persistence in politically connected firms (PCFs). In addition, it investigates whether earnings persistence do vary according to different types of political connections.
Design/methodology/approach
This study employs earnings persistence as measure of earnings quality and ordinary least squares (OLS) model to examine: (1) the moderating effect of institutional investors’ ownership on the association between earnings persistence and PCFs and (2) the association between different types of political connections and earnings persistence.
Findings
This study finds that institutional investors' ownership attenuates weaker earnings quality in PCFs, indicating effective monitoring. However, stronger earnings persistence is associated with PCFs with longer political ties, audited by big four audit firm and with higher CEO power.
Originality/value
This study reveals the lower earnings persistence in PCFs can be attenuated by institutional investors monitoring. However, findings also suggest that earnings persistence in PCFs is affected by duration of political ties, big four audit firm and CEO power. This suggests that PCFs should not be viewed as a homogeneous group of firms.
Keywords
Acknowledgements
This study's data collection is partially supported by Monash University Malaysia Seed Grant (B-7-17 and B-10-17).
Citation
Tee, C.M. and Rasiah, P. (2020), "Earnings persistence, institutional investors monitoring and types of political connections", Asian Review of Accounting, Vol. 28 No. 3, pp. 309-327. https://doi.org/10.1108/ARA-05-2019-0112
Publisher
:Emerald Publishing Limited
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