Why Do Politicians Intervene in Accounting Regulation? The Role of Ideology and Special Interests

Journal of Accounting Research, Volume 58, Issue 3 (2020)

Posted: 1 Jul 2020

See all articles by Jannis Bischof

Jannis Bischof

University of Mannheim - Accounting and Taxation

Holger Daske

University of Mannheim - Accounting and Taxation

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management

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Date Written: June 1, 2020

Abstract

Politicians frequently intervene in the regulation of financial accounting. Evidence from the accounting literature shows that regulatory capture by special interests helps explain these interventions. However, many accounting rules have broad economic or social consequences, such as their effects on 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 explains a politician's stance on the technical accounting issue, beyond special interest pressure. We use two prominent U.S. political debates about fair value accounting 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 bailouts and top management compensation). Once the debates focus on more technical issues, connections to special interests remain the dominant force.

Keywords: accounting regulation; fair value; financial crisis; ideology; political economy; accounting standard setting; stock option expensing

JEL Classification: G01; G28; K22; L51; M40; M41; M48; P16

Suggested Citation

Bischof, Jannis and Daske, Holger and Sextroh, Christoph J., Why Do Politicians Intervene in Accounting Regulation? The Role of Ideology and Special Interests (June 1, 2020). Journal of Accounting Research, Volume 58, Issue 3 (2020), Available at SSRN: https://ssrn.com/abstract=3623177

Jannis Bischof

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Holger Daske

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Christoph J. Sextroh (Contact Author)

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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