CEO Political Contribution and Accounting Conservatism

Abstract

This study investigates whether CEO political contribution, as a measure of CEO political ideology, is associated with a firm’s financial reporting policies in accounting conservatism. Using a sample of federal-level political contributions by CEOs in S&P 500 firms, we find that firms with Republican-leaning CEOs, who tend to have conservative ideology, are associated with a higher degree of accounting conservatism than firms with Democratic-leaning CEOs. We further show that changes in political ideology around CEO turnovers are associated with changes in the firm’s accounting conservatism policies. Our results are robust to a battery of robustness tests. Taken together, our findings are consistent with the assertion of upper echelons theory and suggest that managers with political preference have discretion to translate their personal risk attitude into corporate financial reporting decisions.