Abstracts

The Impact of Politicians' Personal Financial Disclosures on Connected Firms’ Voluntary Disclosure

Solo Authored

This study examines whether politically connected firms reduce their financial disclosure following the mandatory disclosure of politicians' personal financial information. I exploit the unexpected enforcement of mandatory personal financial disclosures on politicians of Italian municipalities with populations exceeding 15,000 residents. Using a difference-in-differences (DID) design, I compare firms connected to affected politicians with firms connected to unaffected politicians of smaller municipalities. The results indicate that mandatory disclosure raises privacy costs for affected firms, as voters may use disclosed information to make electoral decisions that affect the politician's reelection prospects. The decrease in disclosure is more pronounced when the politician faces a higher perceived reelection risk. Specifically, the results are more pronounced when institutional trust is lower, when the politician is more financially involved in the firm, when municipal elections are more competitive, and when the politician was appointed rather than elected. Consistent with this mechanism, I find that treated politicians are more likely to run for reelection, yet face significantly lower reelection rates. Additionally, firms connected to affected politicians not only cease filing financial statements, but also substantially reduce their online disclosures. Overall, these findings suggest that politicians' privacy concerns regarding mandatory personal financial disclosure substantially influence the voluntary disclosure decisions of connected firms.

The Impact of Municipal-Auditor Appointments on Auditors' Private-Sector Audit Engagements

with Zhihong Chen and Qingkai Dong

This paper examines how municipal-auditor appointments affect auditors' private-sector audit engagements. Leveraging the lottery-based selection of municipal auditors in Italy, we compare first-time appointees with auditors who have never been appointed. We find that appointed auditors acquire more private clients and expand the geographic reach of their practices, although these clients are not necessarily located closer to the appointing municipalities. These effects are more pronounced for less experienced auditors and in more competitive audit markets. The increase in private clients appears to be driven primarily by greater visibility, enhanced professional reputation, and networks with other municipal auditors, rather than by connections with politicians. We also show that municipal appointments encourage individuals to progress toward eligibility for future municipal drafts, consistent with the benefits of such appointments. Finally, we find no evidence that municipal appointments affect client firms' financial reporting quality. Overall, our findings highlight the role of professional experience gained through municipal-auditor service in shaping labor market outcomes within the auditing profession.