Abstract
“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 public's 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.
Highlights
Abstract “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
Out of the day-to-day eye of even most businesspersons, accounting rules are essential to defining and measuring fundamental notions such as “profits” and “assets.” The efficient allocation of capital and the effective evaluation of investments in a market economy depend in part on the nature of accounting rules
Just as industry titans are heralded in business school classrooms and on the covers of Fortune and Forbes for their commercial acumen, so too must they be celebrated for their public leadership in thin political markets
Summary
It was only to be expensed when managers of acquiring firms determined via fair-value estimates that it had lost value.[5] a multi-trillion dollar industry where long-term performance measurement is key to ensuring that value is not destroyed ends up with accounting rules that seem inconsistent with even basic tenets of what constitutes a profit. In particular, the auditing rule that deals with auditors’ responsibilities on the kinds of fair-value estimates managers have to make when accounting for goodwill from M&A This rule – known to insiders as “SAS 101” – creates broad insulation from liability for the auditors involved, provided they follow a pre-specified protocol of actions. This is what I refer to as the problem of thin political markets
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