Political connections, board ethnicity and value relevance in Mauritius

Abstract

Purpose - The paper aims to investigate the impact of political connections and board ethnicity on the value relevance of earnings and book value in Mauritius. Design/methodology/approach - This study is based on a sample of 541 Mauritian listed firm-year observations for 2001-2016. Financial and board diversity data have been collected using the listed firms' annual reports and from reports published by the Stock Exchange of Mauritius. Political connection data was derived from the directory of Chief of State and Cabinet members. The research hypotheses were empirically tested using a modified Ohlson (1995) price model. Findings - This study shows that political connections negatively impact the value relevance of earnings and book value. We find that firms with Franco-Mauritian directors will constrain political connections' negative impact. We find contrasting results for Indo-Mauritian directors since they form an integral part of the government in Mauritius. Originality - This study contributes to the scarce accounting literature in Mauritius. Firstly, no study has investigated the relationship between the value relevance of accounting information and political connections in Mauritius. Secondly, Mauritius’ capital market is dominated by a non-indigenous ethnic group, Franco-Mauritians, who remains the economic elite. Hence, Mauritius presents an opportunity to bring forth another important aspect in the capital market and corporate governance; diversity on the board of directors. Therefore, the study extends to the political connections and board diversity literature.