The Informational Effect of Corporate Lobbying Against Proposed Accounting Standards

The Informational Effect of Corporate Lobbying Against Proposed Accounting Standards Accounting standard setting has been described as a highly political process. Different interest groups are often quite ready to criticize any proposed accounting standard and lobby the accounting standard setting body. This study explores the possibility that certain information might be revealed through corporate lobbying behavior. A game-theoretic model is formulated to examine the implications of a proposed accounting standard which, if passed, would require the financial statement recording of some previously undisclosed liabilities. In this model, management has incentive to lobby against the standard and prevent the mandatory reporting of the liabilities. Lobbying against the standard, however, may itself reveal to the market information about the liabilities. Results of the equilibrium analysis show that, because of this informational effect, a company may choose not to lobby even though the company may have a high liability and can be adversely affected by the proposed standard. On the other hand, a company may avoid revealing its liability level if it can adopt the "always-lobby" strategy. Furthermore, a company may not have to lobby at all if it can "free-ride" on other companies' lobbying effort. Companies may even be able to enjoy "free-riding" at least some of the time if each company can share the responsibilities and lobby on a probabilistic and what otherwise may seem like a random basis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Informational Effect of Corporate Lobbying Against Proposed Accounting Standards

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by 1999 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008374831913
Publisher site
See Article on Publisher Site

References

  • Critical Research Issues in Accounting Standard Setting
    Booth, P.; Cocks, N.
  • Measuring Lobbying Influence Using the Financial Accounting Standards Board Public Record
    Buckmaster, D.; Saniga, E.; Tadesse, S.
  • Some Economic Determinants of Management Lobbying for Alternative Methods of Accounting: Evidence from the Accounting for Interest Costs Issue
    Dhaliwal, D.S.

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