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Political StandardsCorporate Interest, Ideology, and Leadership in the Shaping of Accounting Rules for the Market Economy$
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Karthik Ramanna

Print publication date: 2015

Print ISBN-13: 9780226210742

Published to Chicago Scholarship Online: May 2016

DOI: 10.7208/chicago/9780226210889.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2019. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 21 October 2019

Goodwill Hunting

Goodwill Hunting

The Political Economy of Accountability for Mergers and Acquisitions

Chapter:
(p.38) 3 Goodwill Hunting
Source:
Political Standards
Author(s):

Karthik Ramanna

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226210889.003.0003

This chapter provides an insight into the political forces that determine accounting rules through a detailed examination of how accounting rules for corporate mergers and acquisitions were determined. The M&A industry is a multi-trillion dollar sector where evidence indicates that acquirers often overpay for targets, thus destroying value. Effective accounting rules for M&A can address these concerns. The chapter documents how investment banks – that depend on high M&A deal values – and certain serial corporate acquirers were successful in structuring accounting rules in ways that preserved their economic interests while potentially compromising accountability for overpayment in M&A. The chapter then provides evidence on the costs of these accounting rules, documenting how, in some cases, firms delay by over two years the recognition of M&A-related losses in their income statements. The chapter is a window into the kind of narrow special-interest capture that can occur in thin political markets.

Keywords:   capture, goodwill, investment banks, mergers & acquisitions

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