Abstract
The purpose of this study is to examine whether CEO incentives mediate the relationship between political influences and financial reporting quality. This study particularly examines whether CEO incentives are the underlying mechanism through which politically influenced firms affect the incentives of those executives involved in preparing financial statements. In this study, politically influenced firms are identified as those in which politicians or their close relatives, and former or current civil/military bureaucrats are present on the board or in senior management. A sample of non-financial firms listed on the Pakistan Stock Exchange between 2009 and 2015 was taken. The results, which were tested for robustness, revealed that CEO incentives and political influences have a moderating effect on financial reporting quality. This study contributes to the field of corporate governance, integrating the agency and political economy theories, and provides policymakers insight into improving corporate governance in transitional economies. Further, this study contributes to the existing literature by including a new type of political connection, through civil/military bureaucrats.