Which of the following statements apply to the 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

The political cost hypothesis suggests that larger entities are more likely to adopt accounting policies that reduce reported profits to avoid attracting political attention and potential regulatory actions.

Which of the Following Statements Apply to the Political Cost