Corporate Influence on FASB Decision Making: The Case of GPLA

Abstract

The Financial Accounting Standards Board (FASB) follows an elaborate due-process procedure when it sets accounting standards. Surprisingly, little is known regarding what role submissions before the FASB play in the FASB's decision making process. This study examines one set of FASB decisions, changes between its 1974 and 1978 Exposure Drafts on price-level accounting, and relates it to firm specific characteristics suggested by economic theory. The model suggests that a corporation's influence on the FASB is positively related to its resources, the number of diverse constituencies it represents, and its previous success at influencing regulators. Proxies for theses factors are the firm's 1974 net sales, the number of lines of business it disclosed in its 1974 10-K reports, and its 1974 tax subsidy, respectively. The resources and the number of lines of business variables are found to be significant determinants of corporate influence. The results suggest that corporations do influence FASB decision making, and that some corporations are more influential than others.

Keywords: FASB, Lobbying, Influence, Regulation, Political Economy

JEL Classification: D72, G18, G38, K23, L30, L51, M41