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"Political Corruption and Financial Reporting Conservatism"

by Dr Xin (Simba) Chang, Nanyang Technological University


Date   10 Aug 2018 (Fri)
Time   11:00am - 12:30pm
Venue   Rm M714, 7/F, Li Ka Shing Tower, PolyU
Abstract   Using local political corruption data in China, we find that firms in more corrupt areas exhibit higher financial reporting conservatism than firms in less corrupt areas. The results are robust to including a range of controls and to using a natural experiment from recent anti-corruption campaigns in China. Further analysis reveals that the positive effect of local political corruption on reporting conservatism is stronger when firms are more likely to be expropriated by corrupt officials. Collectively, these findings suggest that through adopting more conservative financial reporting policies, firms manage earnings and net worth downward to shield their business from expropriation by corrupt local officials.

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