A political economy of accounting standard setting
- PDF / 402,433 Bytes
- 19 Pages / 439.37 x 666.142 pts Page_size
- 35 Downloads / 265 Views
A political economy of accounting standard setting Roland Ko¨nigsgruber
Published online: 18 July 2009 Ó Springer Science+Business Media, LLC. 2009
Abstract In recent years accounting researchers have identified ‘‘political’’ lobbying as a problem for accounting standard setting. This paper presents a simple game-theoretic analysis of the political process to identify situations where companies have incentives to lobby the political principal instead of participating in the usual due process of accounting standard setting. Analysis of the model suggests that ‘‘political’’ lobbying is more likely to happen in the EU than in the US. Furthermore it is suggested that if the relevant standard setters wish to achieve harmonization of accounting standards between the EU and the US, European companies have more lobbying leverage than their American counterparts because there are more European veto players than American ones. Keywords Accounting standards Regulation Political lobbying Veto players JEL Classification
M48 K20
1 Introduction Accounting standard setters have often been criticised for giving undue influence to individual, mostly corporate, actors and being subject to regulatory capture. A recent addition to the criticisms voiced is the fear of too much political interference preventing ‘‘objective’’ accounting standards. This paper identifies public and/or political organizations which have veto power over accounting standards. It then presents a simple model of the political process to determine how this veto power influences the standard setting process and to identify situations where companies R. Ko¨nigsgruber (&) Center for Accounting Research, University of Graz, Universita¨tsstraße 15/F3, 8010 Graz, Austria e-mail: [email protected]
123
278
R. Ko¨nigsgruber
and managers have incentives to engage in ‘‘political’’ lobbying of the accounting standard setter, i.e., to try to influence accounting standards by approaching political actors instead of participating in the due process of accounting standard setting. The model is applied to the different institutional frameworks in which accounting standard setting takes place in the United States and in Europe. Managers or corporations may wish to retain the ability to conceal unpleasant financial information or the ability to manage earnings to present constant growth or positive financial results (e.g., Burgstahler and Dichev 1997; Burgstahler and Eames 2003, 2006). In order to do so they have incentives to exert influence on financial reporting standards. Major international accounting standard setters follow a due process approach giving companies the ability to express their views and have them taken into account. However, managers pursuing one of the objectives mentioned above generally do not wish to express their preferences in full view of the investing public. Instead, they may use good personal contact to political decision-makers in order to gain leverage over the standard setter. Former FASB Chairman Dennis Beresford (200
Data Loading...
