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Corporate lobbying against proposed accounting standards: Evidence from the FASB's pension accounting project
Abstract
This study examines lobbying against the FASB's 1985 Exposure Draft (ED) on accounting for pensions. The ED's proposals would have put a liability on the balance sheet for unfunded pension benefits, reduced flexibility in measurement of pension expense, and caused possible volatility in expense measurement. Drawing upon contracting theory, it was hypothesized that industrial firms would be motivated to lobby against the proposals because of adverse financial statement effects. The potentially adverse balance sheet effect was measured by using a ratio of net pension liability (asset) to the firm's total existing balance sheet tangible assets. Lobbyists were hypothesized to have a smaller ratio than nonlobbyists. The potential for adverse income statement effects was captured by the use of a ratio of pension expense to pretax earnings. This ratio was hypothesized to be larger for lobbyists than nonlobbyists. Using political cost management wealth theories, firm size and management percentage ownership were hypothesized to be key motivating factors in the lobby decision. Lobbyists were hypothesized to be larger than nonlobbyists. The management wealth hypothesis was a joint test of Jensen and Meckling's (1976) theory and Fama's (1980) theory, so a nondirectional test of management wealth was used. Using both univariate and multivariate (logit) analyses, it was determined that firm size differed significantly (and in the direction predicted) between lobbying and nonlobbying firms. The hypotheses representing adverse financial statements effects were not supported. The pension ratio variable was never significant, although the sign of the difference was in the direction predicted. The pension expense ratio was not significant, and the sign of the difference was opposite of that predicted. Management percentage ownership was significant in the univariate tests, but the logit results indicated that management wealth was not independent of either firm size or industry membership. Results of this study support the political cost theory that firm size may be sufficient to explain the decision to lobby.
Subject Area
Accounting
Recommended Citation
Kerby, Debra K, "Corporate lobbying against proposed accounting standards: Evidence from the FASB's pension accounting project" (1989). ETD collection for University of Nebraska-Lincoln. AAI9004682.
https://digitalcommons.unl.edu/dissertations/AAI9004682