Which of the following statements is true with regards to the political cost hypothesis?
A) Political costs arise as a result of an entity's relationships with shareholders and lenders.
B) Managers of financial institutions may prefer to increase profits to reduce government pressure to pass on interest rate cuts.
C) Smaller entities are more likely to be the target of environmental groups.
D) Managers of entities that are more politically visible are expected to choose accounting policies that reduce profit in order to avoid political costs.

Question

Quizplus · Accepted Answer

The political cost hypothesis states that managers of entities that are more politically visible are expected to choose accounting policies that reduce profit in order to avoid political costs. Option A is incorrect as political costs arise due to political relationships, not shareholder or lender relationships. Option B may be true in certain cases, but it is not related to the political cost hypothesis. Option C is unrelated to the political cost hypothesis and does not address the visibility of an entity in politics.

Which of the Following Statements Is True with Regards to the Political