Do Political Connections Reduce Earnings Management?

Mohamed Khalil, Sandy Harianto, Yilmaz Guney

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)
99 Downloads (Pure)


This study examines whether political connections are associated with earnings management (both accrual-based and real) and whether the association is influenced by corporate governance and external auditing qualities. Empirical evidence on the association between political connections and earnings management remains unclear and offers mixed results. Using a sample of Indonesian firms, we find that political connections are negatively related to accrual-based (AEM) and real (REM) earnings management. In addition, the negative relationship between political connections and earnings management is more pronounced in better-governed firms and those audited by one of the Big 4 auditors. The results are robust to alternative measures of earnings management, endogeneity, and subsample tests. Our results extend the literature by shedding additional light on the governance role and benefits of political connections.
Original languageEnglish
Pages (from-to)273-310
Number of pages38
JournalReview of Quantitative Finance and Accounting
Issue number1
Early online date21 Apr 2022
Publication statusPublished - Jul 2022

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Funding was provided by the Indonesia Endowment Funds for Education (LPDP) at the Ministry of Finance.


  • political connections
  • accrual-based earnings management
  • real earnings management
  • corporate governance
  • audit quality
  • Indonesia


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