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Using listed firms with audit committees in the Korea Composite Stock Price Index (KOSPI) market, we find that firms with a politically connected audit committee have higher earnings quality than those without such connections. We also find that firms with a politically connected audit committee have better access to equity financing, but obtain a larger amount of funds only when their earnings quality is higher. Overall, contrary to popular concerns over the negative influence of political connections, our results suggest that audit committees having political connections fulfil their crucial oversight duties.
audit committee; political connections; earnings quality; external financing