The Role of Real Effects in Accounting Standard Setting

47 Pages Posted: 16 Dec 2022 Last revised: 12 Nov 2024

See all articles by Joachim Gassen

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics; TRR 266 Accounting for Transparency

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich; TRR 266 Accounting for Transparency

Katharina Weiß

LMU Munich School of Management

Date Written: September 02, 2024

Abstract

By shaping firms’ information environments, financial accounting potentially induces real effects outside capital markets, including on firms’ business activities. Based on 25 interviews and over 80 sources of public statements, we document that individual standard setters are generally aware of potential real effects when a project starts. However, whereas some view real effects as irrelevant to their standard-setting decisions, others perceive them as relevant costs or benefits to be considered when debating alternative accounting practices. Using the lens of political economy theories, we find that political ideologies shape these differing views, with those arguing in line with free market advocacy viewing real effects as unrelated to standard setters’ remits. In contrast, active-government reasoning coincides with real effects being viewed as relevant for standard setters. These findings shed light on the ideological underpinnings of accounting standards and have implications for real effects studies.

Keywords: Real effects, standard setting, political economy of accounting, political ideology

JEL Classification: G38, K20, M41, M48

Suggested Citation

Gassen, Joachim and Sellhorn, Thorsten and Weiß, Katharina, The Role of Real Effects in Accounting Standard Setting (September 02, 2024). TRR 266 Accounting for Transparency Working Paper Series No. 113, Available at SSRN: https://ssrn.com/abstract=4304647 or http://dx.doi.org/10.2139/ssrn.4304647

Joachim Gassen (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49 30 2093 5764 (Phone)
+49 30 2093 5670 (Fax)

TRR 266 Accounting for Transparency

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Paderborn, 33098
Germany

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
Germany
+49(0)89-21806264 (Phone)
+49(0)89-21806327 (Fax)

HOME PAGE: http://www.rwp.bwl.uni-muenchen.de/personen/professoren/sellhorn/index.html

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Katharina Weiß

LMU Munich School of Management ( email )

Institute for Accounting, Auditing and Analysis
Ludwigstr. 28 RG
Munich, 80539
Germany

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