Karthik Ramanna
There are 6 articles for this faculty member.
Why Do Countries Adopt International Financial Reporting Standards?
| Authors: | Karthik Ramanna and Ewa Sletten |
|---|---|
| Published: | June 25, 2009 |
| Paper Release Date: | March 2009 |
| Feature: | Working Papers |
Why do some countries adopt the European Union (EU)-based International Financial Reporting Standards (IFRS) when others do not? To expand our understanding of the determinants and consequences of IFRS adoption on a global sample, HBS professor Karthik Ramanna and MIT Sloan School of Management coauthor Ewa Sletten studied variations over time in the decision to adopt these standards in more than a hundred non-EU countries. Understanding countries' adoption decisions can provide insights into the benefits and costs of IFRS adoption.
Elections and Discretionary Accruals: Evidence from 2004
| Authors: | Karthik Ramanna and Sugata Roychowdhury |
|---|---|
| Published: | June 18, 2009 |
| Paper Release Date: | March 2009 |
| Feature: | Working Papers |
How does the political process affect accounting? During the 2004 U.S. congressional elections, outsourcing of American jobs was a major campaign issue. Because outsourcing is assumed to be net profitable, the use of income-decreasing accruals would enable donor firms to deflect public scrutiny of both the firm and the political candidate over outsourcing. HBS professor Karthik Ramanna and MIT Sloan School professor Sugata Roychowdhury examine the accrual choices made by outsourcing firms with links to U.S. congressional candidates during the 2004 elections, and specifically test for income-decreasing discretionary accruals. Evidence is consistent with firms using earnings management to reduce both direct political costs and the costs associated with causing embarrassment to affiliated political candidates.
Evidence from Goodwill Non-Impairments on the Effects of Using Unverifiable Estimates in Financial Reporting
| Authors: | Karthik Ramanna and Ross L. Watts |
|---|---|
| Published: | June 10, 2009 |
| Paper Release Date: | March 2009 |
| Feature: | Working Papers |
SFAS 142 is an accounting rule that requires managers to use estimates of their firms' discounted future values to determine goodwill write-offs. Such estimates are different from the discretion historically afforded in financial reporting in that they are ex post unverifiable. For example, under the standard, a manager of a single-reporting-unit firm can avoid a goodwill write-off despite market indications to the contrary by generating a hypothetical firm value that exceeds the firm's liquid market value. Ex post, if the firm value used to justify non-impairment is not realized, the manager can claim it was due to factors outside his control (e.g., macroeconomic conditions), which is difficult to verify or falsify in a court of law. By promulgating SFAS 142, standard setters must implicitly assume that managers will, on average, use unverifiable discretion to convey private information on future cash flows. In contrast, agency theory predicts managers will, on average, use unverifiable discretion opportunistically. HBS professor Karthik Ramanna and MIT Sloan School professor Ross L. Watts investigate managers' implementation of the goodwill impairment test in SFAS 142 in a sample of firms with market indications of goodwill impairment.
Published in 2008
Accounting Information as Political Currency
| Authors: | Karthik Ramanna and Sugata Roychowdhury |
|---|---|
| Published: | June 19, 2008 |
| Paper Release Date: | May 2008 |
| Feature: | Working Papers |
The study of accounting and the political process has long been viewed through the political cost hypothesis, the basic premise of which is that firms manage earnings in order to extract first-order benefits (or avoid first-order costs) from regulators. This paper develops and tests a distinct, yet likely, complementary hypothesis: Firms manage reported earnings in order to supply first-order benefits to regulators. Focusing on Democratic and Republican candidates in congressional races in 2004, Ramanna and Roychowdhury test whether the management of accounting information is in some circumstances akin to a political contribution from firms to politicians: in other words, whether accounting information can be used as political currency. The authors predict and find that identified corporate donors to candidates in closely watched races in 2004 managed information related to outsourcing, a hot-button issue in those races.
Accounting Information as Political Currency
| Q&A with: | Karthik Ramanna |
|---|---|
| Published: | May 12, 2008 |
| Feature: | Research & Ideas |
Corporate donors that gave at least $10,000 to closely watched races in the U.S. congressional elections of 2004 were more likely to understate their earnings, say Harvard Business School's Karthik Ramanna and MIT colleague Sugata Roychowdhury. Such "downward earnings management" may have functioned as a political contribution. In this Q&A, Ramanna explains how accounting and politics influence each other.
Published in 2007
Evidence on the Effects of Unverifiable Fair-Value Accounting
| Authors: | Karthik Ramanna and Ross L. Watts |
|---|---|
| Published: | September 17, 2007 |
| Paper Release Date: | September 2007, revised May 2008 |
| Feature: | Working Papers |
Since the late 1990s, the Financial Accounting Standards Board (FASB) has pressed for the use of fair values in accounting. When such fair values are based on verifiable market prices, they are less likely to be managed. However, in some FASB standards, fair values are based on managers' or appraisers' unverifiable subjective estimates. Agency theory suggests that managers will take advantage of this unverifiability to manage financial reports in order to extract rents. This paper considers a recent FASB standard known as SFAS 142, which relies on unverifiable fair-value estimates when accounting for acquired goodwill. The goal of the research is to see whether firms are using this standard to manage their financial reports.
