The informational effect of management's decision to lobby against proposed accounting standard

This study explored the possibility that certain information might be revealed through management's lobbying position. In the first part of this study, a lobbying model was formulated to examine a proposed accounting standard which, if passed, would require the financial statement recording of some previously undisclosed liabilities. Given proprietary cost, management had the incentive to lobby against this standard. However, lobbying against the standard might reveal to the market information about the liabilities. The lobbying model examined how management's lobbying behaviour might be affected by such informational effect.;In the second half of this study, empirical data were collected to provide some evidence on the informational effect. Lobbying data on the FASB's 1982/83 proposal of accruing postretirement benefits were used. If management's lobbying against this standard did reveal some information about the existence of the obligations, then different market reactions to the first-time disclosure of the information might be detected between the groups of "lobbying" and "no-lobbying" companies, conditional on their liability levels. Consistent with the predicted implications, significant positive abnormal returns were found for the "lobbying/low OPEB" companies. There were some indications of negative abnormal returns for the "no-lobbying/high OPEB" companies. However, these negative returns were generally not statistically significant.;Additional procedures were also performed to gain further insights into the observed differences in the market's response between the "lobbying" and the "no-lobbying" groups. An alternative approach to the event study methodology was used to measure the information content of the management's lobbying position. However, the results were poor suggesting that there might not be sufficient gains for a market trader to act on and benefit from the information.;Cross-sectional regressions were also used to investigate the relationships between the market response and the accounting disclosure of the OPEB information. The results showed that the abnormal returns were significantly related to the lobbying position of a firm, the amount of OPEB expenditures reported in its first-time OPEB disclosure, and to a lesser extent, the size of the company.