Institutional Investors, Political Connections, and the Incidence of Regulatory Enforcement Against Corporate Fraud

2014 ◽  
Author(s):  
Wenfeng Wu ◽  
Sofia Johan ◽  
Oliver M. Rui
Keyword(s):  
Institutional Investors ◽  
Political Connections ◽  
Regulatory Enforcement ◽  
Corporate Fraud

Earnings persistence, institutional investors monitoring and types of political connections

2020 ◽  
Vol 28 (3) ◽  
pp. 309-327
Author(s):  
Chwee Ming Tee ◽  
Puspavathy Rasiah
Keyword(s):  
Institutional Investors ◽  
Earnings Quality ◽  
Political Connections ◽  
Earnings Persistence ◽  
Ceo Power ◽  
Content Type ◽  
Audit Firm ◽  
Political Ties ◽  
Different Types ◽  
Big Four

PurposeThe purpose of this study is to examine whether institutional investors monitoring attenuate (exacerbate) weaker earnings persistence in politically connected firms (PCFs). In addition, it investigates whether earnings persistence do vary according to different types of political connections.Design/methodology/approachThis study employs earnings persistence as measure of earnings quality and ordinary least squares (OLS) model to examine: (1) the moderating effect of institutional investors’ ownership on the association between earnings persistence and PCFs and (2) the association between different types of political connections and earnings persistence.FindingsThis study finds that institutional investors' ownership attenuates weaker earnings quality in PCFs, indicating effective monitoring. However, stronger earnings persistence is associated with PCFs with longer political ties, audited by big four audit firm and with higher CEO power.Originality/valueThis study reveals the lower earnings persistence in PCFs can be attenuated by institutional investors monitoring. However, findings also suggest that earnings persistence in PCFs is affected by duration of political ties, big four audit firm and CEO power. This suggests that PCFs should not be viewed as a homogeneous group of firms.

Institutional Investors’ Monitoring and Stock Price Crash Risk: Evidence from Politically Connected Firms

2018 ◽  
Vol 21 (04) ◽  
pp. 1850028 ◽  
Author(s):  
Chwee Ming Tee ◽  
Angelina Seow Voon Yee ◽  
Aik Lee Chong
Keyword(s):  
Institutional Investors ◽  
Stock Price ◽  
Positive Association ◽  
Institutional Ownership ◽  
Political Connections ◽  
Crash Risk ◽  
Different Types

Motivated by recent studies on political connections and stock price crash risk, this study investigates whether there is an association between politically connected (POLCON) firms and stock price crash risk. Further, we examine whether institutional investors’ ownership can moderate this association. Using a dataset of Malaysian firms for the period 2002–2012, we show that POLCON firms are associated with higher risk of stock price crashes. However, the positive association between POLCON and stock crashes is attenuated by higher institutional ownership, implying effective monitoring. Finally, we find that only local institutional investors can significantly mitigate the positive association between POLCON firms and stock price crash risk. This suggests that different types of institutional investors can produce different monitoring outcomes in POLCON firms.

Political connections, institutional investors monitoring and stock price synchronicity

2017 ◽  
Vol 43 (11) ◽  
pp. 1236-1253 ◽  
Author(s):  
Chwee Ming Tee
Keyword(s):  
Institutional Investors ◽  
Stock Price ◽  
Agency Problems ◽  
Institutional Ownership ◽  
Political Connections ◽  
Stock Price Synchronicity ◽  
Content Type ◽  
Institutional Monitoring ◽  
Moderating Role

Purpose The purpose of this paper is to examine the association between politically connected (POLCON) firms and stock price synchronicity, and whether this association can be attenuated by institutional investors. Design/methodology/approach This paper uses an ordinary least square regression model to examine the association between POLCON firms and stock price synchronicity; institutional ownership and stock price synchronicity; the moderating role of institutional ownership on the association between POLCON firms and stock price synchronicity; institutional domiciles and stock price synchronicity; and the moderating role of institutional domiciles on the association between POLCON firms and stock price synchronicity. Findings The result shows that POLCON firms are positively associated with stock price synchronicity. Further, the author also finds that institutional monitoring, through higher ownership by local institutional investors is associated with lower stock price synchronicity. In addition, this study documents evidence that institutional investors, particularly local institutional investors can improve stock price informativeness in POLCON firms. Research limitations/implications The results suggest that POLCON firms are plagued by severe agency problems, resulting in limited flow of firm-specific information to the capital markets. However, the author shows that POLCON firm’s agency problems can be attenuated through effective monitoring by institutional investors. Further, institutional domiciles are shown to be significantly associated with stock price synchronocity. However, effective monitoring is largely driven by local institutional investors, in line with the geographical proximity theory. Practical implications The results suggest that regulators should increase their surveillance and monitoring effort, particularly on firms with close ties to the government. In particular, POLCON firms should be required to be more transparent in their corporate dealings. Additionally, auditors should intensify their audit efforts on POLCON firm to provide more reliable financial information to minority shareholders, investors and analysts. Finally, institutional investors should be incentivized by the Malaysian Securities Commission, via, the code of governance to play an effective monitoring role in Malaysian firms. Originality/value This study reveals that POLCON firms’ severe agency problems can be alleviated by effective institutional monitoring. Further result identifies institutional domiciles as a significant factor in influencing monitoring effectiveness in POLCON firms. This paper provides insights into the dynamic interaction between political connections, institutional monitoring, firm governance and capital markets behavior of an emerging market.

scholarly journals Corporate Political Connections and Favorable Environmental Regulatory Enforcement

2021 ◽  
Author(s):  
Amanda Heitz ◽  
Youan Wang ◽  
Zigan Wang
Keyword(s):  
Climate Change ◽  
Environmental Protection Agency ◽  
Clean Air Act ◽  
Campaign Contributions ◽  
Pollutant Emissions ◽  
Political Connections ◽  
Special Issue ◽  
Protection Agency ◽  
Regulatory Enforcement ◽  
Clean Air

We examine whether the Environmental Protection Agency (EPA) uniformly enforces the Clean Air Act for politically connected and unconnected firms using a close election setting. We find no difference in regulated pollutant emissions or EPA investigations between the two groups, although connected firms experience less regulatory enforcement and lower penalties. These results are more pronounced for firms connected to politicians capable of influencing regulatory bureaucrats and for connected firms that are more important to their supported politicians. Taken together, our results show that campaign contributions can indirectly benefit firms by way of reduced environmental regulatory enforcement and penalties. This paper was accepted by Colin Mayer for the Special Issue of Management Science: Business and Climate Change.

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