Relation-Based Economy, political Connections, and Accrual Quality

This study investigates the effect of political connections on accrual quality of firms listed in Tehran Stock Exchange. It also examines the relation between key accounting variables of politically connected firms and accrual quality. The methodology used in this research is correlation based on multiple regression. The results of the research for a 5-year data during the period between 2005-2009 show that political connections in sample companies have led to the decrease in accrual quality, and also the results of testing hypotheses reveal that the accrual quality proxy has positive correlation with audit size, profitability index and financial leverage. In contrast, it has poor correlation with the size of the politically connected firms which is not significantly statistical. Also, the findings of the study have not shown any significant evidence on the existence of significant relation among other variables such as auditor switching, management switching, and sale growth with accrual quality.