Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/15451
Title: Auditor choice in politically connected firms
Authors: Guedhami, O
Pittman, JA
Saffar, W 
Issue Date: 2014
Publisher: Wiley-Blackwell
Source: Journal of accounting research, 2014, v. 52, no. 1, p. 107-162 How to cite?
Journal: Journal of Accounting Research 
Abstract: We extend recent research on the links between political connections and financial reporting by examining the role of auditor choice. Our evidence that public firms with political connections are more likely to appoint a Big 4 auditor supports the intuition that insiders in these firms are eager to improve accounting transparency to convince outside investors that they refrain from exploiting their connections to divert corporate resources. In evidence consistent with another prediction, we find that this link is stronger for connected firms with ownership structures conducive to insiders seizing private benefits at the expense of minority investors. We also find that the relation between political connections and auditor choice is stronger for firms operating in countries with relatively poor institutional infrastructure, implying that tough external monitoring by Big 4 auditors becomes more valuable for preventing diversion in these situations. Finally, we report that connected firms with Big 4 auditors exhibit less earnings management and enjoy greater transparency, higher valuations, and cheaper equity financing.
URI: http://hdl.handle.net/10397/15451
ISSN: 0021-8456
DOI: 10.1111/1475-679X.12032
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