The Implications of Unverifiable Fair-Value Accounting: Evidence from the Political Economy of Goodwill Accounting

Posted: 1 Dec 2007

See all articles by Karthik Ramanna

Karthik Ramanna

University of Oxford - Blavatnik School of Government

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Abstract

I study the evolution of SFAS 142, which uses unverifiable fair-value estimates to account for acquired goodwill. I find evidence consistent with the FASB issuing SFAS 142 in response to political pressure over its proposal to abolish pooling accounting. The result is interesting given this proposal was due in part to SEC 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 such unverifiable discretion can be used opportunistically.

Keywords: accounting standard setting, fair values, politics, SFAS 142

JEL Classification: D72, M41, M43, M44, M49

Suggested Citation

Ramanna, Karthik, The Implications of Unverifiable Fair-Value Accounting: Evidence from the Political Economy of Goodwill Accounting. Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1042081

Karthik Ramanna (Contact Author)

University of Oxford - Blavatnik School of Government ( email )

Radcliffe Observatory Quarter
Oxford, Oxfordshire OX2 6GG
United Kingdom

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