Karthik Ramanna

The International Politics of IFRS Harmonization

The globalization of accounting standards as seen through the proliferation of IFRS worldwide is one of the most important developments in corporate governance over the last decade. I offer an analysis of some international political dynamics of countries’ IFRS harmonization decisions. The analysis is based on field studies in three jurisdictions: Canada, China, and India. Across these jurisdictions, I first describe unique elements of domestic political economies that are shaping IFRS policies. Then, I inductively isolate two principal dimensions that can be used to characterize the jurisdictions’ IFRS responses: proximity to existing political powers at the IASB; and own potential political power at the IASB. Based on how countries are classified along these dimensions, I offer predictions, ceteris paribus, on countries’ IFRS harmonization strategies. The analysis and framework in this paper can help broaden the understanding of accounting’s globalization.

Thin Political Markets: The Soft Underbelly of Capitalism

“Thin political markets” are the processes through which some of the most complex and critical institutions of our capitalist system are determined—e.g., our accounting-standards infrastructure. In thin political markets, corporate managers are largely unopposed—because of their own expertise and the general publics low awareness of the issues. This enables managers to structure the “rules of the game” in self-serving ways. The result is a structural f aw in the determination of critical institutions of our capitalist system, which, if ignored, can undermine the legitimacy of the system. This article provides some ideas on how to fix the problem.

Capture and Competition

The lobbying literature provides evidence of firms shaping their regulatory context, consistent with corporate rent-seeking. We propose that such rent-seeking, where it exists, is unlikely to enrich shareholders at the expense of customers when firms operate in competitive product markets. We test this proposition through an assessment of the dissipation of the cash benefits accrued from corporate tax inversions. We find lower accounting and stock-market returns to shareholders of inverting firms in competitive industries (relative to those in concentrated industries). Further, inverting firms in competitive industries are more likely to improve liquidity and invest in R&D relative to those in concentrated industries. The evidence suggests that in competitive industries lobbying “rents” accrue to customers over shareholders.