The impact of political connectedness on corporate governance disclosure : empirical evidence from Pakistan

This research examines how political connectedness influences the corporate governance disclosure practices of listed companies. The research also explores the process of preparation of annual reports and seeks explanations on decision making, regarding the level and nature of corporate governance disclosure. This research uses annual report data from companies listed on the Karachi Stock Exchange from 2009-2013. The research utilises qualitative content analysis for the study of the disclosure practices of politically connected and non-connected firms. An in-depth analysis of silence has been conducted focusing on the incidence of the lack of information on corporate governance. Furthermore, semi-structured interviews have been conducted in order to seek deeper insights into the research phenomena and the triangulation of findings. The findings of the qualitative content analysis indicate that non-connected firms disclose a higher level of voluntary, as well as mandatory corporate governance information, in comparison with politically connected firms. However, the variation in the level of voluntary disclosure is found to be higher when compared with mandatory disclosure. The results of the analysis of silence indicate that politically connected firms stay silent on a diverse range of voluntary disclosure items and provide notably limited disclosure. The findings of interview data analysis are consistent with the findings of qualitative content analysis and the analysis of silence in annual reports. To make sense of the findings the research has called upon the dual perspectives offered by agency theory and rational choice institutionalism. In assessing the implications of disclosure/non-disclosure practices it is found that the decision to disclose information is driven by the self-interest and opportunism of politically connected members of the board who avoid voluntary disclosure of information. However, it is also found that rationality plays an important role and while the firms are operating in a tight regulatory environment, politically connected firms provide better mandatory disclosure.