Accounting discretion, corporate lobbying on accounting issues, and future firm performance

Abstract

This study examines whether the accounting discretion, exercised in an opportunistic manner, is associated with the management decisions of lobbying on the accounting issues. To overcome the drawbacks of the prior literatures, novel data of corporate lobbying provided by SOPR’s Lobbying Disclosure Act Database is used for this study. I find that firm’s discretionary accrual level is positively associated with the manager’s accounting lobbying decisions, which implies that the managerial opportunism underlies the corporate accounting lobbying activities. Further, I also find that these lobbying activities are value destructive in terms of shareholders’ wealth. Overall, the results of this study show that lax disclosure requirement of LDA is providing the rooms for the managers to abuse lobbying activities on behalf of themselves.