TY - JOUR
T1 - Political Uncertainty and Accounting Conservatism
AU - Dai, Lili
AU - Ngo, Phong
N1 - Publisher Copyright:
© 2020 European Accounting Association.
PY - 2021
Y1 - 2021
N2 - Political uncertainty leads to greater information asymmetry among contracting parties to the firm, resulting in an increased demand for accounting conservatism. Exploiting the exogenous variation in political uncertainty induced by the U.S. gubernatorial election cycle over the period 1963–2016, we find that the asymmetric timeliness of news recognition increases with political uncertainty. Our political uncertainty hypothesis operates through the contracting demand channel. Accordingly, we find that the political uncertainty effect is more pronounced for firms in states with lower electoral participation, for firms with greater industry exposures to contracting needs, for firms with higher leverage and lower managerial ownership, and for firms with stronger internal corporate governance mechanisms.
AB - Political uncertainty leads to greater information asymmetry among contracting parties to the firm, resulting in an increased demand for accounting conservatism. Exploiting the exogenous variation in political uncertainty induced by the U.S. gubernatorial election cycle over the period 1963–2016, we find that the asymmetric timeliness of news recognition increases with political uncertainty. Our political uncertainty hypothesis operates through the contracting demand channel. Accordingly, we find that the political uncertainty effect is more pronounced for firms in states with lower electoral participation, for firms with greater industry exposures to contracting needs, for firms with higher leverage and lower managerial ownership, and for firms with stronger internal corporate governance mechanisms.
KW - Accounting conservatism
KW - Contracting demand
KW - Political uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85084809262&partnerID=8YFLogxK
U2 - 10.1080/09638180.2020.1760117
DO - 10.1080/09638180.2020.1760117
M3 - Article
SN - 0963-8180
VL - 30
SP - 277
EP - 307
JO - European Accounting Review
JF - European Accounting Review
IS - 2
ER -