Constituent lobbying and its impact on the development of financial reporting regulations: evidence from Germany

Abstract

This paper examines the impact of constituent lobbying activity on accounting regulators during the transformation of the Fourth European Company Law Directive into German accounting law. Using detailed published commentaries prepared by representative organisations on draft accounting legislation, we provide evidence concerning the preferences of the three primary German constituencies—preparers, auditors, and academic experts. Initially, a model that merely distinguishes between the three constituencies suggests that the industry lobby group representing preparers exerts the greatest influence on the decisions of the German legislature. However, when the empirical model is extended to include all two-way interaction effects, the relative power of preparers is seen to be far lower, with the influence exerted by industry depending crucially on the support of at least one of the remaining lobby groups.