Why do politicians intervene in accounting regulation? The role of ideology and special interests

Jannis Bischof, Holger Daske, Christoph J. Sextroh

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Political economy explains the behavior of politicians by regulatory capture and by ideology. Politicians frequently intervene in the regulation of financial accounting. Prior evidence from the accounting literature shows that regulatory capture by special interests explains these interventions. Politicians tend to view accounting regulation as a technical issue where ideological views play a minor role. However, many accounting rules directly lead to economic or social consequences, such as income distribution or private-sector subsidies. The perception of these consequences varies with a politician’s ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and also explains a politician’s stance on the technical accounting issue, beyond special interest pressure. We use two prominent political debates about fair value accounting during the financial crisis and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bail-outs and top-management compensation). Once the debates focus on more technical issues, political connections to special interests remain the most dominant force.
Original languageEnglish
JournalJournal of Accounting Research
Publication statusAccepted/In press - 2020

Fingerprint

Politicians
Accounting regulation
Ideology
Regulatory capture
Financial crisis
Fair value accounting
Private sector
Financial accounting
Bailouts
Spillover
Income distribution
Subsidies
Management compensation
Economics
Economic consequences
Political connections
Employee stock options
Top management
Political economy

Keywords

  • Accounting Regulation
  • Fair Value
  • Financial Crisis
  • Ideology
  • Political Economy
  • Accounting Standard-Setting
  • Stock Option Expensing

Cite this

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title = "Why do politicians intervene in accounting regulation? The role of ideology and special interests",
abstract = "Political economy explains the behavior of politicians by regulatory capture and by ideology. Politicians frequently intervene in the regulation of financial accounting. Prior evidence from the accounting literature shows that regulatory capture by special interests explains these interventions. Politicians tend to view accounting regulation as a technical issue where ideological views play a minor role. However, many accounting rules directly lead to economic or social consequences, such as income distribution or private-sector subsidies. The perception of these consequences varies with a politician’s ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and also explains a politician’s stance on the technical accounting issue, beyond special interest pressure. We use two prominent political debates about fair value accounting during the financial crisis and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bail-outs and top-management compensation). Once the debates focus on more technical issues, political connections to special interests remain the most dominant force.",
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Why do politicians intervene in accounting regulation? The role of ideology and special interests. / Bischof, Jannis; Daske, Holger; Sextroh, Christoph J.

In: Journal of Accounting Research, 2020.

Research output: Contribution to journalArticleScientificpeer-review

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T1 - Why do politicians intervene in accounting regulation? The role of ideology and special interests

AU - Bischof, Jannis

AU - Daske, Holger

AU - Sextroh, Christoph J.

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N2 - Political economy explains the behavior of politicians by regulatory capture and by ideology. Politicians frequently intervene in the regulation of financial accounting. Prior evidence from the accounting literature shows that regulatory capture by special interests explains these interventions. Politicians tend to view accounting regulation as a technical issue where ideological views play a minor role. However, many accounting rules directly lead to economic or social consequences, such as income distribution or private-sector subsidies. The perception of these consequences varies with a politician’s ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and also explains a politician’s stance on the technical accounting issue, beyond special interest pressure. We use two prominent political debates about fair value accounting during the financial crisis and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bail-outs and top-management compensation). Once the debates focus on more technical issues, political connections to special interests remain the most dominant force.

AB - Political economy explains the behavior of politicians by regulatory capture and by ideology. Politicians frequently intervene in the regulation of financial accounting. Prior evidence from the accounting literature shows that regulatory capture by special interests explains these interventions. Politicians tend to view accounting regulation as a technical issue where ideological views play a minor role. However, many accounting rules directly lead to economic or social consequences, such as income distribution or private-sector subsidies. The perception of these consequences varies with a politician’s ideology. Therefore, if accounting rules produce those consequences, ideology plausibly spills over and also explains a politician’s stance on the technical accounting issue, beyond special interest pressure. We use two prominent political debates about fair value accounting during the financial crisis and the expensing of employee stock options to disentangle the role of ideology from special interest pressure. In both debates, ideology explains politicians’ involvement at exactly those points when the debate focuses on the economic consequences of accounting regulation (i.e., bank bail-outs and top-management compensation). Once the debates focus on more technical issues, political connections to special interests remain the most dominant force.

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KW - Fair Value

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KW - Political Economy

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