A Political Economy of Accounting Standard Setting

In recent years accounting researchers have identified “political” lobbying as a problem for accounting standard setting. This paper presents a simple game-theoretic analysis of the political process to identify situations where companies have incentives to lobby the political principal instead of participating in the usual due process of accounting standard setting. Analysis of the model suggests that “political” lobbying is more likely to happen in the EU than in the US. Furthermore it is suggested that if the relevant standard setters wish to achieve harmonization of accounting standards between the EU and the US, European companies have more lobbying leverage than their American counterparts because there are more European veto players than American ones. Running Head: Political Economy of Accounting Standards Roland Koenigsgruber Center for Accounting Research, University of Graz, Universitätsstraße 15 / F3, 8010 Graz, Austria. Tel.: +43-316-380-3503; Fax: +43-316-380-9565; e-mail: [email protected]