Conservatism

In: Business and Management

Submitted By Tiffany118
Words 20500
Pages 82
Journal of Accounting and Economics 55 (2013) 66–90

Contents lists available at SciVerse ScienceDirect

Journal of Accounting and Economics journal homepage: www.elsevier.com/locate/jae

Towards an understanding of the role of standard setters in standard setting$
Abigail Allen, Karthik Ramanna n
Harvard Business School, USA

a r t i c l e in f o

abstract

Article history:
Received 15 September 2010
Received in revised form
24 May 2012
Accepted 25 May 2012
Available online 7 June 2012

We investigate the effect of standard setters in standard setting. We examine how certain professional and political characteristics of FASB members and SEC commissioners predict the accounting ‘‘reliability’’ and ‘‘relevance’’ of proposed standards.
Notably, we find FASB members with backgrounds in financial services are more likely to propose standards that decrease ‘‘reliability’’ and increase ‘‘relevance,’’ partly due to their tendency to propose fair-value methods. We find opposite results for FASB members affiliated with the Democratic Party, although only when excluding financialservices background as an independent variable. Jackknife procedures show that results are robust to omitting any individual standard setter.
& 2012 Elsevier B.V. All rights reserved.

JEL classification:
D72
D78
G18
K22
L51
M41
Keywords:
Accounting
FASB
Politics
Relevance
Reliability
Standard setting

1. Introduction
As the Financial Accounting Standards Board (FASB) closes in on four decades, the role of its standards in shaping U.S. and international corporate reporting is widely acknowledged. An empirical literature on the political economy of FASB standard setting has emerged over that period to explore the origins of accounting standards largely through an analysis of constituent comment-letter lobbying (e.g., Watts and Zimmerman, 1978). But such…...

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