Board Political Connections and Earnings Quality: A Reciprocal Relationship
DOI:
https://doi.org/10.61143/umyu-jafr.8(1)2025.025Keywords:
Reciprocity, Political Connections, Earning QualityAbstract
The purpose of this study is to investigate whether reciprocity exist among firms with heterogeneous political connections and investigate how it affect earnings quality. Data was collected using panel data, this study employs two-stage least squares regression (2SLS) with the instrumental variable technique to examine the relationship between heterogeneous political ties and earnings quality. The study applies panel data regression analysis, using ordinary least square to a sample of 156 companies listed in Nigerian Stock Exchange (NSX) during the period of 2012-2020. The study finds that, reciprocity exists in the governance mechanism of sample firms, and such reciprocity comes at a cost to the beneficiary firms. Consequently, social exchange and reciprocity mechanism increase operational costs of the firms. Also, the study finds positive and significant relationship between presence and proportion of political connections with both discretionary accrual and real earnings management, while chairman political connection shows negative and significant relationship both discretionary accrual and real earnings management. The study recommends that, policy makers and regulatory bodies in Nigeria should ensure that boards have a majority of truly independent directors without political affiliations to reduce undue influence on financial reporting as well as Mandating the disclosure of any political connections of board members and executives in annual reports and filings to inform stakeholders of potential biases.
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