CEO-Employee Political Alignment and Financial Reporting Outcomes
Mr. Sang Woo Sohn
Ph.D. Candidate in Accounting
Goizueta Business School
Emory University Atlanta
I examine the association between CEO-employee political alignment and financial reporting outcomes. Using individual political campaign contribution data to measure CEO and employee partisanship, I find that firms with less political alignment between the CEO and employees issue less frequent management forecasts and exhibit more internal control weaknesses and restatements. The negative relation between the political distance and management forecast frequency exists for both Democratic and Republican CEOs and is driven by periods with high political polarization of economic views and by CEOs with similar partisanship to the area where the firm is headquartered. This relation is attenuated when the employees have fewer outside opportunities and when the firm has fewer employees. My evidence suggests that the political distance between the CEO and employees is associated with both voluntary and mandatory disclosure quality.
