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The implications of unverifiable fair-value accounting : evidence from the political economy of goodwill accounting

I study the evolution of Statement of Financial Accounting Standard (SFAS) # 142, which uses unverifiable fair-value estimates to account for acquired goodwill. I find evidence consistent with the Financial Accounting Standards Board (FASB) issuing SFAS 142 in response to political pressure over its proposal to abolish pooling accounting: pro-pooling firms can be linked-via political contributions-to U.S. Congresspersons pressuring the FASB on this issue. This result is interesting given the proposal to abolish pooling was due in part to the Securities and Exchange Commission's concerns over pooling misuse. I also find evidence consistent with lobbying support for SFAS 142 increasing in firms' discretion under the standard. Agency theory predicts this unverifiable discretion will be used opportunistically. The results highlight the potential costs of unverifiable fair-value accounting.
Year of publication:
2007
Authors: Ramanna, Karthik
Other Persons: Ross L. Watts. (contributor)
Institutions: Sloan School of Management (contributor)
Publisher: Massachusetts Institute of Technology
Subject: Sloan School of Management
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Type of publication: Book / Working Paper
Type of publication (narrower categories): Thesis
Language: English
Source:
BASE
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