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Earnings persistence, institutional investors monitoring and types of political connections

Author

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  • Chwee Ming Tee
  • Puspavathy Rasiah

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.

Suggested Citation

  • Chwee Ming Tee & Puspavathy Rasiah, 2020. "Earnings persistence, institutional investors monitoring and types of political connections," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 28(3), pages 309-327, April.
    • Handle: RePEc:eme:arapps:ara-05-2019-0112
    DOI: 10.1108/ARA-05-2019-0112
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    Cited by:

    1. Tee, Chwee Ming & Lee, Mei Yee & Majid, Abdul, 2021. "Heterogeneous political connections and stock price crash risk: Evidence from Malaysia," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).

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