Abstract
ABSTRACT This paper examines whether and how executives’ political connections affect their incentives to withhold bad news, measured by the stock price crash risk. We find that political connections are negatively associated with the stock price crash risk. Moreover, we show that political connections reduce firms’ financial constraints and encourage firms to disclose more bad news to compete for government subsidies, which lowers managers’ incentives to hide bad news. We also find that the negative relationship between political connections and crash risk varies with external institutions. Our results are robust to numerous robustness tests.
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