Research in Accounting Regulation, Volume 20 (Research in Accounting Regulation)

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This may explain the lack of statistical relevance of some of the independent variables and may even explain the negative sign of NETREV. To work around this issue, new models were constructed, each including only one of the size variables. When variables related to size were placed in the model separately, each of them was statistically significant and the sign of the coefficient was as expected, which confirms the effect of multicollinearity.

The general parameters of the regressions remained practically stable from a qualitative point of view, which, when considering all of the variables, suggests that the models are statistically significant, in accordance with the likelihood ratio tests. Nagelkerke's R 2 of the models was between This suggests that oil companies with performance-based management compensation plans are more likely to lobby via comment letters than oil companies without performance-based management compensation plans.

Further, oil companies with performance-based management compensation plans were more likely to lobby by a factor of 3. The results support acceptance of the political cost hypothesis developed by Watts and Zimmerman , according to which large companies tend to lobby on accounting legislation to obtain results that are more favorable to them. The results are also consistent with the findings of Francis , Deakin and Georgiou and Roberts regarding size.

Thus, there is no evidence to reject hypothesis H 1 based on binomial logistic regression modeling. The binomial logistic regression also supports albeit less convincingly the theoretical hypothesis presented in the literature that company managers who receive performance-based compensation that depends on financial indicators tend to lobbyon legislation to obtain the accounting models that best benefit them. The econometric model used here and in the majority of the studies on lobbying Francis, ; Deakin, ; Ndubizu et al, ; Georgiou and Roberts, has been criticized because the binary dependent variable used in the model cannot capture the extent of the respondent's position Holthausen and Leftwich, Rather, the variable only captures whether comments are submitted code 1 or not code 0 , or whether companies were in favor of 1 or against 0 the proposal.

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Because the DPEA has ten questions, respondents may have provided comments in response to all of the questions or only to some of them, and may have been in favor of some of the proposals butagainst others. These situations are not captured by the binomial logistic regression model. To address this issue, a multinomial logistic regression model was used, the results of which are shown in Table 9. The multinomial logistic regressions are arranged in two blocks.

The first set contains the results of the comparison between oil companies in favor of the DPEA proposals and oil companies that did not submit comments on the DPEA, whereas the results of the second block refer to the comparison between oil companies opposed to the proposals in the DPEA and oil companies that did not submit comments. In view of the multicollinearity issue, the multinomial logistic regressions were performed separately for each independent variable for size. Analyzing the estimated coefficients, the results show that the size variables in each model, apart from the constant, were statistically significant in both blocks of results except for UPSTREAM in the first block , which reinforces the findings on the political cost hypothesis.

It can therefore be inferred that large oil companies are more likely to lobby via comment letters than other oil companies. A closer look at the likelihood of lobbying via comment letters indicates that this trend is greater for companies lobbying against the proposal, as demonstrated by the results obtained with increased net revenue. On the one hand, an increase in net revenue NETREV increases the likelihood of lobbying in favor of a proposal relative to not lobbyingby a factor of 1.


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On the other hand, there is a 4. The same behavior is observed with respect to increases in AVPROF increases the likelihood of lobbying in favor by a factor of 1. The results obtained by multinomial logistic regression give robustness to the consideration of size as a determining economic factor for companies to lobby via comment letters. Thus, there is still no evidence to reject hypothesis H 1.

CRITICAL RESEARCH ISSUES IN ACCOUNTING STANDARD SETTING

For modeling using Poisson regression Table 10 , regressions were performed considering the extent to which oil companies lobbied in favor of the proposals contained in the DPEA as opposed to not lobbying panel A and the extent to which companies lobbied against the proposals contained in the DPEA as opposed to not lobbying panel B.

This result was suggested somewhat in the binomial logistic regression analyses, and the Poisson regression confirms those analyses, demonstrating that this characteristic having a performance-based management compensation plan is relevant to lobbying in favor of the DPEA.

This evidence also supports Watts and Zimmerman's political cost hypothesis, i. In the case of the Poisson regression, an analysis of the coefficients indicates that the propensity to reject a proposal in the DPEA is greater than the propensity toaccept a proposal in the DPEA; therefore, lobbying is conductedto reject any change to the status quo.

Interestingly, exploration costs UPSTREAM were not significant in either of the Poisson regression models regressions 11 and 15 , which is inconsistent with expectations. Based on thePoisson regression results, it appears that regardless of the extent to which a company was in favor of or against the DPEA proposals, size and the existence of a performance-based management compensation plan marginally represent determining factors for lobbying by the oil companies.

This finding indicates that companies with these characteristics tend to have a lobbyist posture, either for or against accounting regulations regarding extractive activities, which supports the theory developed throughout this study. With respect to the formulated test hypotheses, there is no evidence to reject hypothesis H 1 , and hypothesis H 2 cannot be completely ruled out.

This study attempted to establish a conclusive analysis regarding the variables representing size, because these variables serve to explain the same phenomenon and are highly correlated.

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For that purpose, this study conducted technical factor analysis Table 11 to establish a factor representative of size that could be used as a dependent variable in binomial and multinomial logisticregressions and in Poisson regression. Principal component analysis PCA was used to obtain the factors. PCA seeks to summarize most of the variance of the variables in a minimum number of factors. The results of factor analysis are presented in Appendix 1. New regressions were generated using this variable; the results are shown in Table The results demonstrate and confirm the previous findings that size is a relevant feature that increases the likelihood that a company will lobby via comment letter.

In all cases regressions 18 to 22 , the size variable was statistically significant. Analyzing the coefficients obtained, the likelihood is greater that lobbying in general will be against the DPEA proposals. However, this configuration does not confirm the relevance of management compensation plans MANCOMP to the likelihood of lobbying via comment letter. In the situations tested, there was statistical significance only when the extent of agreement disagreement with the DPEA proposals was tested using Poisson regression regression 21 , and such significance was marginal.

The results are robust and support the fact that there are determining factors in the adoption of lobbying strategies by oil companies regarding established or proposed accounting regulations. The results also confirm the political cost hypothesis the size hypothesis advocated by Watts and Zimmerman , which holds that large companies tend to lobby standard setters on accounting regulation toobtain standards that meet their needs.

The size factor was modeled using different approaches and proved relevant in all econometric models used, which supports the hypothesis that large oil companies are more likely to lobby. This trend was especially evident for companies that were predominantly opposed to the proposals in the DPEA.

The evidence also indicates, in a marginal way, that oil companies with performance-based management compensation plans are more likely to lobby than other oil companies, as was previously demonstrated by Watts and Zimmerman , Deakin and Georgiou and Roberts By combining the results, one can infer that large companies in the oil industry will lobby against changes to the status quo when the IASB attempts to introduce new accounting regulations for the oil industry. In other words, financial statement preparers are in favor of the use of historical cost as the basis for asset value and the freedom to choose between two different accounting methods successful efforts and full cost.

Furthermore, they are opposed to changes that would increase disclosure requirements. From the perspective of institutional theory, the IASB's due process for standard setting seeks high levels of participation by its constituents at all stages of standard development to make the standard-setting process more neutral and legitimate.

At the same time, according to theeconomic theory of regulation, companies participate in the due process of standard setting to obtain standards that benefit themselves. The results presented in this study pertain only to oil companies and cannot be generalized to other economic sectors or to the overall IASB standard-setting process.

However, the econometric models used in this study can be generalized and reproduced in other studies, particularly the models that use multinomial and Poisson regressions, which are new to research onlobbying on accounting regulation.


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  8. Although the concept of lobbying used here has been widely used in the accounting literature, it limits the results of this study, given that the submission of comment letters to the IASB's public consultation was the only lobbying activity considered. Therefore, other modeling studies could be conducted to expand on the present study; for example, future studies could use questionnaires and interviews to include other forms of lobbying in the analysis, similar to the work performed by Georgiou In addition, it is important to note that the proxies used to define firms' characteristics are not necessarily limited to those used here, and other economic determinants may be possible.

    Thus, judgments regarding the integrity of the database may represent researcher bias. Asekomeh, A. A critical analysis of the use of accounting standards' comment letters as lobbying tools by extractive industry firms. Petroleum Accounting and Financial Management Journal, 25 3 , Becker, G. A theory of competition among pressure groups for political influence. Quarterly Journal of Economics, 98 , Bengtsson, E. Critical Perspectives on Accounting, 22 , Chatham, M. Issues affecting the development of an international accounting standard on financial instruments.

    Research in Accounting Regulation Volume 20

    Advances in Accounting, incorporating Advances in International Accounting, 26 , Chung, D. The informational effect of corporate lobbying against proposed accounting standards. Review of Quantitative Finance and Accounting, 12 3 , Collins, D.

    Market effects of the elimination of full cost accounting in the oil and gas industry. Financial Analysts Journal , The Accounting Review, 57 1 , Corrar, L.

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    Cortese, C. Extractive industries accounting and economic consequences: past, present and future. Accounting Forum, 33 , Deakin, E. An analysis of differences between non-major oil firms using successful efforts and full cost methods. The Accounting Review, 54 4 , Rational economic behavior and lobbying on accounting issues: evidence from the oil and gas industry. Dhaliwal, D. Some economic determinants of management lobbying for alternative methods of accounting: evidence from the accounting for interest costs issue.

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    Rio de Janeiro: Elsevier. Fields, T. Empirical research on accounting choice. Journal of Accounting and Economics, 31 , Fogarty, T. Financial accounting standard setting as an institutionalized action field: constraints, opportunities and dilemmas. Journal of Accounting and Public Policy, 11 , Francis, J.

    Table of Contents

    Lobbying against proposed accounting standards: the case of employers' pension accounting. Discussion of empirical research on accounting choice. Georgiou, G. Corporate lobbying on accounting standards: methods, timing and perceived effectiveness. Abacus, 40 2 , Investigating corporate management lobbying in the U. The IASB standard-setting process: participation and perceptions of financial statement users.

    The British Accounting Review, 42 , Corporate lobbying in the UK: an analysis of attitudes towards the ASB's deferred taxation proposals. Giner, B. Lobbying on accounting standards: evidence from IFRS 2 on share-based payments. European Accounting Review, 21 4 , Hansen, T. Lobbying of the IASB: an empirical investigation. Journal of International Accounting Research, 10 2 , Hill, N.

    Corporate lobbying behavior on accounting for stock-based compensation: venue and format choices. Holthausen, R. The economic consequences of accounting choice: implications of costly contracting and monitoring.

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