Friends in High Places: An Empirical Analysis of Political Connections, Corruption, and Voluntary Disclosure
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I investigate whether political connections, defined as corporate lobbying and campaign contributions, moderate the adverse effects a firm faces from operating in a corrupt environment. A corrupt environment refers to a state in which there is a high public official corruption conviction rate per capita. In these environments, firms have incentives to decrease voluntary disclosure due to the threat of illegal expropriation by public officials. However, I find that the known negative relation between corruption and voluntary disclosure is moderated in the presence of political connections. This suggests that there is a weaker incentive for politically connected firms, compared to non-politically connected firms, to reduce voluntary disclosure. I find evidence indicating that this moderation is driven by greater investor demand for disclosure. My results show that firms operating in corrupt environments not only face greater demand for disclosure, in general, but face greater demand for political disclosure, in particular. I examine whether these findings are concentrated in politically connected firms (i.e., firms that publicly disclose a relation with a public official). I find that the demand for disclosure is significantly greater for firms that provide such public disclosure. Lastly, I also find evidence that the moderating effect of political connections extends to corporate policies other than disclosure (i.e., cash holdings and leverage policies).
Grady, Megan Elizabeth (2020). Friends in High Places: An Empirical Analysis of Political Connections, Corruption, and Voluntary Disclosure. Doctoral dissertation, Texas A&M University. Available electronically from