From low-quality reporting to financial crises: Politics of disclosure regulation along the economic cycle

Bertomeu, Jeremy; Magee, Robert P.

doi:10.1016/j.jacceco.2011.08.005

Cited by 91 publications

(41 citation statements)

References 38 publications

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“…A similar perspective is offered by Ball (2009), who discusses the relation between the political/regulatory process and the market for corporate governance and financial reporting in the wake of the accounting scandals in the US circa 2001. Bertomeu and Magee (2011) focus on the financial sector to model the relation between economic cycles and political intervention in standard-setting. The basic idea in this paper is that, as economic conditions decline, political forces align to weaken financial transparency, which allows more bad loans to be made.…”

Section: The Agenda Of Standard-settersmentioning

confidence: 99%

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The politics of accounting standard-setting: A review of empirical research

Gipper

Lombardi

Skinner

2013

Australian Journal of Management

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We provide an overview of the empirical literature on the politics of accounting standard-setting, focusing on the US Financial Accounting Standards Board (FASB). Although it is clear from casual observation that politics sometimes plays a first-order role in the determination of accounting standards, we argue that more can be done to improve our understanding of this important topic. Based on our review, we outline what we see to be a number of potentially fruitful directions for future research.

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Section: The Agenda Of Standard-settersmentioning

confidence: 99%

“…2. Some promising recent work along these lines includes Bertomeu and Magee (2011) and Bertomeu and Cheynel (2013). 3.…”

Section: Fundingmentioning

confidence: 99%

The politics of accounting standard-setting: A review of empirical research

Gipper

Lombardi

Skinner

2013

Australian Journal of Management

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“…However, since the potential deadweight loss also increases, the regulator is interested in higher regulatory intensities and, despite the increased lobbying, increases

π_{1}^{*}

and

π_{2}^{*}

. If the potential for diversion D increases in the firms' realized or expected cash flows, our model suggests greater lobbying in macroeconomic expansions than contractions, in contrast to the prediction in Bertomeu and Magee [].…”

Section: The Modelmentioning

confidence: 64%

Lobbying and Uniform Disclosure Regulation

Friedman

Heinle

2016

J of Accounting Research

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This study examines the costs and benefits of uniform accounting regulation in the presence of heterogeneous firms that can lobby the regulator. A commitment to uniform regulation reduces economic distortions caused by lobbying by creating a free-rider problem between lobbying firms at the cost of forcing the same treatment on heterogeneous firms. Resolving this tradeoff, an institutional commitment to uniformity is socially desirable when firms are sufficiently homogeneous or the costs of lobbying to society are large. We show that the regulatory intensity for a given firm can be increasing or decreasing in the degree of uniformity, even though uniformity always reduces lobbying. Our analysis sheds light on the determinants of standard-setting institutions and their effects on corporate governance and lobbying efforts. society are large. We show that regulatory intensity for a given …rm can be increasing or decreasing in the degree of uniformity, even though uniformity always reduces lobbying. Our analysis sheds light on the determinants of standard-setting institutions and their e¤ects on corporate governance and lobbying e¤orts.

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“…Similar predictions can be inferred from the analysis for various shocks to fundamentals, and we discuss a few. If, for example, the quality of projects were to vary, then there would be more demand to reduce the disclosure threshold during periods with fewer high-quality projects (recessions) and, vice versa, demand to increase the disclosure threshold during periods with fewer lowquality projects (expansions), as in Bertomeu and Magee (2011). As another possibility, the political independence of the standard-setter a might randomly change across periods, possibly in tandem with changes in fundamentals.…”

Section: Discussionmentioning

confidence: 99%

Political pressures and the evolution of disclosure regulation

Bertomeu

Magee

2014

Rev Account Stud

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This paper examines the process that drives the formation and evolution of disclosure regulations. In equilibrium, changes in the regulation depend on the status quo, standard-setters' political accountability and underlying objectives, and the cost and benefits of disclosure to reporting entities. Excessive political accountability need not implement the regulation preferred by diversified investors. Political pressures slow standard-setting and, if the standard-setter prefers high levels of disclosure, induce regulatory cycles characterized by long phases of increasing disclosure requirements followed by a sudden deregulation.Keywords Disclosure Á Political Á Certification Á Financial reporting Á Mandatory Á Standard Á Positive economicsShould standard-setters be accountable to the public and its elected representatives? Historically, the question has been divisive. On the one hand, many standard-setters argue against political interference; Dennis Beresford, a former chairman of the Financial Accounting Standard Board (FASB), notes that members of Congress often strongly oppose certain FASB positions during congressional hearings: 123Rev Account Stud (2015) 20:775-802 DOI 10.1007 ''The FASB often is on the defensive because these hearings are generally convened when certain companies, industry associations, or others allege that pending FASB positions will cause serious economic harm if adopted as final accounting standards '' (Beresford 2001). 1 On the other hand, government regulators have often argued that standard-setting should be subject to high levels of political oversight (Zeff 2003). Consistent with this view, the current institutional environment provides the means for law-makers to immediately override any accounting standard. This environment is different from other policy choices such as judiciary rulings (e.g., the Supreme Court) or monetary policy (e.g., the Federal Reserve).Resolving this debate is difficult because, for the most part, the economic consequences of political accountability are understudied. This paper proposes to speak to this debate by examining the costs and benefits of political oversight on the regulation of accounting standards. We examine this question within the general paradigm of accountability in government and refer to accountability as a political process that restrains the actions of a regulator (Laffont and Tirole 1991;Maskin and Tirole 2004). As in this literature, we ask whether political accountability will effectively discipline a regulator to implement a social objective.To analyze the consequences of accountability, our theoretical model incorporates the following principal elements.Reporting motives. Managers have private information about future cash flows and prefer standards that maximize the (short-term) stock price after disclosures have been made. Managers can report information voluntarily but cannot withhold information in a manner that violates the disclosure regulation. Managers' preference over regulations thus depends on their priva...

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From low-quality reporting to financial crises: Politics of disclosure regulation along the economic cycle

Cited by 91 publications

References 38 publications

The politics of accounting standard-setting: A review of empirical research

The politics of accounting standard-setting: A review of empirical research

Lobbying and Uniform Disclosure Regulation

Political pressures and the evolution of disclosure regulation

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