01 Jan 2015Working Paper Summaries

Lobbying Behavior of Governmental Entities: Evidence from Public Pension Accounting Rules

by Abigail M. Allen and Reining Petacchi
Influential studies of the effect of corporate lobbying on accounting standards tend to conclude that economic self-interests motivate lobbying in the private sector. In contrast, in the public sector, there are significantly fewer theoretical underpinnings for the factors affecting the lobbying behavior of governmental entities. Empirically, little has been known about the extent to which governmental entities participate in the accounting standard setting process. This paper aims to fill the void by examining the comment letters submitted by state governments to the Governmental Accounting Standards Board's (GASB) pension reform project. Specifically, the authors test whether opposition to proposed accounting changes is a function of expected accounting statement impact and the associated economic consequences and political implications of such changes. Results suggest that government officials lobby in their own self-interests, not in the interests of their constituencies. Overall, it appears that government lobbying is misaligned with public interest concerns. Furthermore, user support varies across user types: For example, internal users (public employees) are more likely to oppose accounting standards reform relative to external users such as credit analysts and regular citizens. Key concepts include:
  • Government lobbying tends to be misaligned with public interest concerns.
  • "Internal" users such as public employees are more likely to oppose accounting reporting reform than are external users such as credit analysts and regular citizens. However, this difference is moderated in states where public employees' benefits are constitutionally guaranteed.
  • This may be the first paper in accounting scholarship to examine the lobbying of governmental entities in the formulation of accounting standards.

Author Abstract

We examine the lobbying behavior of state governments in the development of recently issued public pension accounting standards GASB 67 and 68. Consistent with opportunistic motivations, we find that states' opposition to the liability increasing provisions embedded in these standards is increasing in the severity of pension plan underfunding, state budget deficits, and the use of high discount rates. Further we find opposing states are subject to more stringent balanced budget requirements and greater political pressure from unions. By contrast, we find evidence that the support from financial statement users for these provisions is amplified in states with poorly funded plans and large budget deficits, suggesting government lobbying is misaligned with a public interest perspective. We also find evidence that user support varies by type: internal users (public employees) overwhelmingly oppose the standards, relative to external users (credit analysts and the broader citizenry), but the difference is moderated in states with constitutionally protected benefits. This finding is consistent with the expectation that pension accounting reform will motivate cuts in pension benefits as opposed to increased levels of funding from the governments. Analyses of 2011 and 2012 state pension reforms confirm that states opposed to accounting reform are more likely to cut pension benefits.

Paper Information

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