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    Political Patronage, Audit Quality and the Properties of Analysts' Earnings Forecasts in Malaysia

    84412.pdf (1.796Mb)
    Access Status
    Open access
    Authors
    Gist, Willie
    Abdul Wahab, Effiezal
    Date
    2021
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Gist, W. and Abdul Wahab, E. 2021. Political Patronage, Audit Quality and the Properties of Analysts' Earnings Forecasts in Malaysia. Journal of International Accounting Research. 20 (1): pp. 49-78.
    Source Title
    Journal of International Accounting Research
    DOI
    10.2308/JIAR-19-077
    ISSN
    1558-8025
    Faculty
    Faculty of Business and Law
    School
    School of Accounting, Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/84665
    Collection
    • Curtin Research Publications
    Abstract

    Based on a sample of 2,034 Malaysian listed firm-year observations for the period 2007–2014, this study shows a negative relationship between dimensions of political patronage (i.e., politically connected firms and the percentage of Bumiputera directors) and analysts' earnings forecast accuracy. Furthermore, the study documents a positive relationship between Bumiputera directors and earnings forecast dispersion. These results suggest that the political patronage of firms is associated with low-quality earnings. We also find that measures of high audit quality are associated with high financial reporting quality and that this is evident in firms with high audit quality showing a weaker negative (positive) relationship between forecast accuracy (dispersion) and political connections and high levels of Bumiputera directors. Overall, the findings suggest that high audit quality plays an important role in mitigating agency costs of information asymmetry by improving the financial information environment.

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