Accounting Information Quality, Tax Avoidance and Companies' Performance: the Moderate Role of Political Connection

Abstract

Purpose: This study examines the relationship between the accounting information quality, tax avoidance, and political connection in all Jordanian companies listed on Amman Stock Exchange. The current study also investigates the moderating effect of political connections on accounting information quality and company performance relationships. Further, the study examines the moderating effect of political connection on tax avoidance and company performance relationship. Theoretical framework: Political connections, tax avoidance, and the quality of accounting information affect a company's performance. According to the agency theory, reliable accounting information improves business performance and resources’ allocation efficiency by reducing information asymmetry. Additionally, the adverse effects of politics on companies are mitigated by accounting information quality. As a result, the cash flow is allocated effectively, improving the business's overall performance. Design/methodology/approach: The study uses the ordinary least squares (OLS) and applied moderated multiple regression (MMR). The sample data of this study includes 2266 company-years observations over the period 2008-2018 for all Jordanian companies listed on Amman Stock Exchange. The study compares accounting and market-based measurements of companies' performance (ROE, Tobin's Q). Findings: The study reveals consistent results among the measure. The results support the agency theory and found that accounting information quality reduces information asymmetry and positively affects companies' performance. Also, tax avoidance helps the companies to have more cash, and the results indicate a significant positive effect on companies' performance. In addition, the results support the agency theory argument and found that politics increase agency costs and negatively affect companies' performance. However, further analysis found that political connections sustain the positive effect of accounting information quality, which is a robust governance mechanism in Jordanian listed companies. Finally, the results found that tax avoidance with more political connections harms companies' performance. Research, Practical & Social implications: This study helps policymakers increase the governance mechanisms function in Jordanian listed companies. Also, the higher political relationship with the companies could be affected negatively on the Jordanian companies' achievement. Originality/value: The findings suggest several consequences for the fields of accounting and corporate governance. Additionally, the Middle East nations, including the Jordanian market, have had numerous economic difficulties that this study aids in resolving. For example, antagonistic political ties, information asymmetry, and insufficient allocation of financial resources.

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