ارتباطات سیاسی، شرکت های خانوادگی و کیفیت سود Political connections, family firms and earnings quality

1. Introduction The involvement of politicians in commercial business enterprises has received widespread criticism from academic researchers (Chaney et al., 2011; Faccio, 2010; Leuz and Oberholzer-Gee, 2006). Extant research suggests that politically connected firms suffer from a number of problems including poor financial performance, low financial reporting quality, corruption, operational inefficiencies and lack of investor protection (Faccio, 2010; Faccio, 2006; Chaney et al., 2011; Fan et al., 2007). Businesses tend to develop political connections either explicitly or implicitly. Explicit connections develop through personal ties between politicians and businesses. For example, a firm develops a political connection when a politician officially joins the board of directors or becomes a major shareholder in a firm (Faccio, 2010; Faccio, 2006; Fisman, 2001). On the other hand, implicit political connections develop through friendships between the senior management personnel of the firm and political figures (Faccio et al., 2006). Moreover, implicit political connections can arise, inter alia, as a result of the firm giving donations or campaign contributions to a political party at (or near) the time of elections (Cooper et al., 2010; Claessens et al., 2008; Aggarwal et al., 2012). In Pakistan, politicians have been involved in domestic businesses for a long time (Rehman, 2006). Since gaining independence in 1947, Pakistani politicians have owned and controlled several business organizations in various sectors of the economy, ranging from banking and financial services to textiles and fertilizers (Rehman, 2006). Moreover, politicians in Pakistan have been increasingly associated with business organizations primarily through their appointment on the board of directors, employment within the firm or through informal links (or friendship) with senior management personnel of companies (Rehman, 2006). Notwithstanding the nature of the connection, the involvement of politicians in businesses creates a host of problems. When politicians pursue the goal of maximizing profits within their businesses, they are ignoring their official responsibilities of working in the national interest. Moreover, prior research suggests that businesses connected to politicians generally sacrifice the interests of minority shareholders and suffer from severe agency problems (Khwaja and Mian, 2005; Ashraf and Ghani, 2005). Politically connected firms usually have poor financial reporting quality (Chaney et al., 2011; Belkaoui, 2004). There are several reasons why the quality of financial reporting of politically connected companies may be lower as compared to non-connected companies. First, connected companies tend to deliberately hide and obscure financial information so as to benefit at the expense of investors (Leuz et al., 2003). Second, connected companies receive protection from politicians and therefore do not bother excessively about the quality of financial information they report to the public (Chaney et al., 2011). Moreover, as connected companies receive benefits from other sources, such as preferential access to finance and lower taxation, they do not focus on reporting high-quality financial information (Chaney et al., 2011; Faccio, 2010; Leuz et al., 2003).