Director Networks, Political Connections, and Earnings Quality in Malaysia

Wahab, Effiezal Aswadi Abdul; Jamaludin, Mohd Faizal; Agustia, Dian; Harymawan, Iman

doi:10.1017/mor.2020.26

Cited by 17 publications

(14 citation statements)

References 97 publications

(203 reference statements)

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“…Therefore, in China, boards with higher centrality are more likely to use their network directly or indirectly to connect with political authority, intervening in news reports, social media and other public opinion systems, thereby weakening the exposure risks of symbolic management. Similar logic has also been found in other corporate practices; for example, firms with higher board centrality implement more inefficient mergers and acquisitions ( Tao et al, 2019 ) and higher earnings management ( Abdul Wahab et al, 2020 ), because they are more likely to circumvent the influence of public opinion supervision. Second, boards with higher centrality help to reduce information asymmetry among them and their connecting firm, making it easier for their firms to obtain and utilize information ( Larcker et al, 2013 ), namely, allowing them to effectively observe and learn the successful experience of symbolic practices from other peers and then use them in their own firms ( Nandy et al, 2020 ).…”

Section: Theoretical Background and Hypothesessupporting

confidence: 59%

Board Network and CSR Decoupling: Evidence From China

et al. 2022

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This paper investigates the influence of board network centrality on corporate social responsibility (CSR) decoupling. CSR decoupling refers to the gap between corporate internal and external actions in CSR practices. Specifically, we measure CSR decoupling as the difference between corporate social disclosure (CSD) and corporate social performance (CSP). This paper uses a sample of Chinese A-share listed firms during 2009–2018, takes the technical dimension score (T-score) and content dimension score (C-score) of RKS ratings as proxies of CSD and CSP, and obtains CSR decoupling as the difference between CSD and CSP. Our results show that (1) board network centrality is positively related to over-decoupling in the pre-adoption period (2009–2014) of the new environmental law but negatively related to over-decoupling in the post-adoption period (2015–2018) and (2) centrality is not related to under-decoupling in the pre-adoption period but a significantly positive related in the post-adoption period. Our finding reveals a complex role of the board network in CSR practices in China.

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Section: Theoretical Background and Hypothesessupporting

confidence: 59%

Board Network and CSR Decoupling: Evidence From China

et al. 2022

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“…Another important recent stream has examined financial reporting quality, considering earnings quality (Abdul-Wahab et al , 2020; Chaney et al , 2011; Kang and Zhang, 2018; Shin et al , 2018), corporate social responsibility disclosure (Muttakin et al , 2018), environmental information disclosure (Cheng et al , 2017), related party transactions (Habib et al , 2017) and fraudulent financial reporting (Wang et al , 2017); however, we found limited evidence for associations between PCON firms and analysts' earnings forecasts. In China, He and Ma (2019) discovered that political connections in Chinese state-owned enterprises encouraged analysts to be optimistic, thus generating misleading recommendations.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 64%

Types of politically connected firms and analysts' earnings forecast

Kamarudin

Ismail

Harymawan

et al. 2021

JAAR

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PurposeThis study examined the effect of different types of politically connected (PCON) Malaysian firms on analysts' forecast accuracy and dispersion.Design/methodology/approachThe study identified different types of PCON firms according to Wong and Hooy's (2018) classification, which divided political connections into government-linked companies (GLCs), boards of directors, business owners and family members of government leaders. The sample covered the period 2007–2016, for which earnings forecast data were obtained from the Institutional Brokers' Estimate System (IBES) database and financial data were extracted from Thomson Reuters Fundamentals. We deleted any market consensus estimates made by less than three analysts and/or firms with less than three years of analyst forecast information to control for the impact of individual analysts' personal attributes.FindingsThe study found that PCON firms were associated with lower analyst forecast accuracy and higher forecast dispersion. The effect was more salient in GLCs than in other PCON firms, either through families, business ties or boards of directors. Further analyses showed that PCON firms—in particular GLCs—were associated with more aggressive reporting of earnings and poorer quality of accruals, hence providing inadequate information for analysts to produce accurate and less dispersed earnings forecasts. The results were robust even after addressing endogeneity issues.Research limitations/implicationsThis study found new evidence of the impact of different types of PCON firms in exacerbating information asymmetry, which was not addressed in prior studies.Practical implicationsThis study has a significant practical implication for investors that they should be mindful of high information asymmetry in politically connected firms, particularly government-linked companies.Originality/valueThis is the first study to provide evidence of the impact of different types of PCON firms on analysts' earnings forecasts.

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“…These ties might be through network connections or state ownership [51,52]. One form of this phenomenon is to have government officials in the service of an organization's executive or directors, literally embedding political affiliates in economic organizations [53,54]. This phenomenon is on the horns of a dilemma as on one hand, it may leverage the firms with ingress to government's valuable resources but on the other hand, it makes them liable for extra limelight of government monitoring.…”

Section: Political Ties and Quality Of Corporate Social Responsibility Disclosurementioning

confidence: 99%

CSR Disclosure: Effects of Political Ties, Executive Turnover and Shareholder Equity. Evidence from China

et al. 2021

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The context of China fosters different contextual factors, which influences the quality of corporate social responsibility (CSR) disclosure in comparison to firms across the rest of the world. Political ties at a corporate level are one of these vital factors. This paper studies the influence of firm-level political ties (PT) and executive turnover (ET) on the quality of CSR disclosure in the context of shareholding status of departing executive in Chinese listed A-share firms. Stakeholder and Agency theories are applied to the dissemination of CSR disclosures in Chinese firms whereby we used 20,578 firm-years interpretations of Chinese registered companies between 2012 and 2019. The results foster a negative link between executive turnover and quality of CSR disclosures. In addition, a negative relationship has been found between political ties and the quality of CSR disclosure. The findings disclose that the shareholding status of departing executive moderate the relationship between the impact of political ties and executive turnover on firms quality of CSR disclosure, whilst the effect of executive turnover on the quality of CSR disclosure was found more pronounced for firms whose departing executive held larger shareholding (SH). This study contributed to the literature on the quality of CSR disclosure while recognizing the negative effect of executive turnover on a firm’s quality of CSR disclosure for politically tied firms with a reinforcing moderating role of the shareholding status of departing executive.

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Director Networks, Political Connections, and Earnings Quality in Malaysia

Cited by 17 publications

References 97 publications

Board Network and CSR Decoupling: Evidence From China

Board Network and CSR Decoupling: Evidence From China

Types of politically connected firms and analysts' earnings forecast

CSR Disclosure: Effects of Political Ties, Executive Turnover and Shareholder Equity. Evidence from China

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