Which of the following statements apply to political cost hypothesis?
A) Political costs arise as a result of an entity's relationships with shareholders and lenders.
B) Managers would prefer accounting policies that increase profit in order to compensate for political costs.
C) Smaller entities are more likely to be the target of lobby groups.
D) Managers of larger entities are more likely to choose accounting policies that reduce profit in order to avoid political costs.

Question

Quizplus · Accepted Answer

Larger entities are more visible and may face political scrutiny, so managers might choose accounting policies that reduce profit to avoid attracting attention and potential political costs.

Which of the Following Statements Apply to Political Cost Hypothesis