Is Warren Buffett's Commentary on Accounting, Governance and Investing Practices Reflected in the Investment Decisions and Subsequent Influence of Berkshire Hathaway?

Posted: 27 Jul 2014

See all articles by Robert M. Bowen

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Shivaram Rajgopal

Columbia Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 25, 2014

Abstract

We examine (i) whether the business practices of Berkshire Hathaway investees are consistent with Warren Buffett’s public statements on what constitutes good accounting, governance and investing practices and (ii) whether these practices are associated with Berkshire’s initial “selection” or Buffett’s subsequent “influence.” Compared to control firms, we find that Berkshire investees are highly likely to follow Buffett’s investment philosophy, somewhat likely to follow his preferred accounting, disclosure and compensation policies, but unlikely to follow the board-related governance practices that we can measure. Second, we find some evidence that the business practices of future Berkshire investees are more aligned with Buffett’s beliefs in the pre-investment period compared to control firms. Third, we find relatively modest evidence that investees improve a few of their business practices subsequent to Berkshire’s initial investment. However, overall, Buffett does not appear to be especially influential in the subsequent accounting, governance and investing decisions of Berkshire investees, likely because he has already taken into account the attributes he cares most about in the initial investment decision.

Suggested Citation

Bowen, Robert M. and Rajgopal, Shivaram and Venkatachalam, Mohan, Is Warren Buffett's Commentary on Accounting, Governance and Investing Practices Reflected in the Investment Decisions and Subsequent Influence of Berkshire Hathaway? (July 25, 2014). Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2472125

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics ( email )

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HOME PAGE: http://www.chapman.edu/our-faculty/robert-bowen

University of Washington - Foster School of Business ( email )

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University of Washington
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206.334.0911 (Phone)

HOME PAGE: http://foster.uw.edu/faculty-research/directory/robert-bowen/

Shivaram Rajgopal (Contact Author)

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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