HOW POLITICAL CONNECTIONS INFLUENCE FRAUDULENT FINANCIAL REPORTING: INSIGHTS FROM A SYSTEMATIC LITERATURE REVIEW

Abstract

Fraudulent financial reporting (FFR) continues to be a significant issue for regulators, investors, and politicians, especially in contexts where political connections affect company governance. The influence of political connections on financial transparency and fraud risk is a subject of extensive dispute, with certain research indicating that politically connected companies enjoy regulatory leniency, whereas others contend that these links offer stability and oversight. Although considerable study has been conducted on political connections and FFR independently, a comprehensive knowledge of their interaction is yet insufficiently examined. This study performs a systematic literature review (SLR) to investigate the correlation between political connections and FFR. A structured methodology was employed to analyse data from 17 research papers indexed in Scopus or WOS, aiming to identify principal themes, methodological frameworks, and empirical results. The review adheres to the PRISMA guidelines to guarantee rigour and transparency. Research suggests that political connections undermine governance mechanisms, enabling earnings manipulation and fraudulent reporting, particularly in developing countries. Studies show politically connected boards weaken internal controls, reduce audit effectiveness, and face fewer legal consequences. Quantitative methods using firm-level data are common, focusing on board characteristics, political ties, and their impact on financial reporting quality. This study enhances the literature by integrating current findings and identifying research gaps. Future research should investigate the moderating influence of institutional structures, the interplay between political connections and audit quality, and cross-national comparisons to evaluate the generalisability of results. Comprehending these dynamics is essential for policymakers in formulating policies that alleviate the detrimental impacts of political connections on financial transparency.