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CODIFIED SELF REGULATION
AND ITS CRISES: FINANCIAL
REPORTING RULES IN THE
UNITED STATES, 1973-1987
Stephen J. Mezias,*
and Mikelle Calhoun*
*Department of Management and Organizational Behavior
New York University
40 West 4th Street
New York City, NY 10012
**Department of Management, Yonsei University
This is a preliminary draft; please do not cite or quote without permission.
Please direct correspondence to the first author. We would like to thank
participants at the Great Scott Conference, Stanford University for many
Much of the early empirical work based on the neo-institutional perspective (DiMaggio
and Powell, 1991) was directed at providing evidence of the effects of institutional environments
on organizations. Many studies provided persuasive qualitative accounts of institutional change
as the basis of the hypotheses tested (Tolbert and Zucker, 1983; Meyer and Scott, 1983; Baron,
Dobbin, and Jennings, 1986; Dobbin, Edelman, Meyer, Scott, and Swidler, 1988; Edelman,
1990; Mezias, 1990). However, change to the institutional environment remained largely a
backdrop in this early work. Subsequent work has directly addressed institutional change,
including models of legal environments (Edelman, 1990; 1992; Abzug and Mezias, 1993;
Edelman and Suchman, 1997) and processes of legalization (Dobbin, 1992; Dobbin, Sutton,
Meyer, and Scott, 1993; Sutton and Dobbin, 1995). An important result of this work has been a
shift in neo-institutional views of regulatory processes towards more explicit emphasis on the
dynamic nature of legal environments, particularly regulatory initiatives (Edelman and Suchman,
1997; Schneiberg and Bartley, 2001). This view focuses on the role of markets, politics, and
institutional determinants by integrating capture theory, interest group theory, and institutional
theory. The aim of this paper is to contribute to our understanding of the theory and evidence for
the dynamic view of legal environments.
We propose to do this by developing arguments link capture theory, interest group
theory, and institutional theory with the forms of isomorphism proposed by DiMaggio and
Powell (1983) in the context of what we call the regulatory field. We then turn our attention to
the structuring of the process by professionals. Based on this, we examine separately decision
making for two types of regulatory change. The first is a more incremental type of changes,
which we call codified self-regulation. The second is much more significant regulatory change,
which we describe as the creation of substantive standards. We apply our ideas in the context of
the regulation of financial reporting in the United States (henceforth, US) between 1973 and
1987. We find that capture theory, interest group theory, and institutional theory all can be
linked with variables that have a significant effect on outcomes. In addition, the prestructuring
of the decision context in processes dominated by professionals makes the role of this group
FINANCIAL REPORTING REGULATION
Financial reporting regulation by the federal government began following the 1929 stock
market collapse and the Great Depression. In response to the accounting scandals that followed
these events, Congress passed the legislation creating the Securities and Exchange Commission
(henceforth, SEC). Companies selling equity securities in the US became subject to the
requirement to file financial statements with the SEC. In creating these reports, firms are
required to follow the evolving set of rules known as generally accepted accounting principles
(henceforth, GAAP). From its inception that SEC has delegated the determination of GAAP;
Mezias (1990: 434-435) described the process:
“In 1937, the newly created Securities and Exchange Commission passed the power to dictate
the content of generally accepted accounting principles to a private commission dominated by
the accounting profession, the Committee on Accounting Procedure. Its principal role was to
determine generally accepted accounting principles that the SEC would apply in its oversight of
the financial statements of companies with publicly traded stocks. This role has been
consistently controversial, resulting in frequent disagreements among powerful players in the
institutional environment. Principally as a result of these upheavals in the institutional
environment, the Committee on Accounting Procedure and the Accounting Principles Board
have been replaced by the Financial Accounting Standards Board.”
Since 1973, the primary agency in determining the content of GAAP has been the
Financial Accounting Standards Board (henceforth, FASB). Describing how the SEC has
delegated authority to set accounting standards to the FASB, Skousen (1991: 118) wrote: The “...
SEC stated explicitly in ASR No. 150 that it considers those accounting principles, standards,
and practices promulgated by the FASB as having considerable authoritative support. ... The
SEC thus recognizes the FASB as the primary standard-setting body...” The particular
delegation of authority embedded in the SEC decision to have a private body, currently the
FASB, set accounting rules, is somewhat unique. However, according to March and Olsen’s
(1989: 97) characterization of the corporatist state, this use of organizations “... at the margin of
the state has grown. Administrative functions have been entrusted to semi-autonomous
governmental or quasi-governmental agencies.” Although the specific arrangement between the
SEC and FASB may be unique, the practice of delegating policy authority to an autonomous,
quasi-governmental agency is not.
Carmichael and Willingham (1989: 11-12) have described GAAP as a hierarchy with the
Statement of Financial Accounting Standards issued by the FASB at the top. These regulations
qualify as the most formalized and legitimated part of the GAAP hierarchy. Thus, in studying
the evolution of financial reporting regulation, we will focus on the process by which the FASB
issues its most important pronouncements: the Statements of Financial Reporting Standards.
These are the specific regulatory changes that are the empirical setting in which we will test the
ideas discussed in the remainder of this paper.
Isomorphism in Regulatory Fields
The theoretical framework we use can be summarized in terms of a regulatory field. It is
a field in the DiMaggio and Powell (1983) sense of the word: It is at the interorganizational level
and consists of a relevant grouping of organizations and other actors that affect the outcome
under study. In our case, the outcomes under study are changes in the regulation of financial
reporting in the US. Since we are studying regulatory outcomes, we describe the
interorganizational field of immediate theoretical relevance as a regulatory field. The relevant
actors for the determination of these outcomes are three. In the subsequent sections, we
elaborate on the role of each of these organized actors; Figure 1 presents a summary of our
FIGURE 1: THE
of the large pressures THE
accounting firms CONTENT
Representatives isomorphic FINANCIAL
of large, for-profit pressures REPORTING
The first set of actors are labeled professionals; they include members of the certified
public accounting profession, particularly those acting in their roles as partners in the large
public accounting firms. The distinctive source of influence of this organized actors derives
from their control over normative isomorphic pressures. At the interorganizational level, the
professionals have been given control over the content of GAAP by the SEC. They also control
the professional bodies such as the American Institute of Certified Public Accountants that
determine important rules such as auditing standards and govern the body of professional
knowledge that drives judgements in the field. At the level of individual organizations, the
profession controls the certification of financial statements. By SEC mandate, which has the
force of law, all financial statements filed with them must be certified by a professional
accountant. A small oligopoly of partnership firms largely control, organize, and deploy this
supply of labor as well as the rules they follow in performing their work (Boland, 1982). In
terms of motivation, we presume that the profession acts so as to minimize conflict, presumably
because this helps them maintain power and influence.
The second organized actor consists of the firms, for-profit enterprises lobbying to
influence the content of regulatory rules. Their distinctive source of influence derives from their
control over the content of financial statements. Through mimetic isomorphic processes, they
control important precedents embodied in the notion of prevailing practice (Edelman, 1990;
1992). In terms of describing their motivation and actions, we follow Schneiberg and Bartley
(2001) in using capture theory to describe them; thus, we assume that firms attempt to dominate
regulatory processes to obtain rules that they prefer.
The final organized actor includes those persons acting as members of the government
and its agencies; they are labeled Regulators. The distinctive source of influence of this
organized actors derives from their control over the legal environment (Edelman, 1990; 1992)
governing the interactions among the three actors. As noted by Mezias (1990), a wide variety of
state actors can affect the content of financial reporting regulation. For example, in addition to
the Securities and Exchange Commission (SEC), which dictates rules for all firms filing financial
statements, a multitude of other agencies can also dictate rules for specific types of firms. The
Interstate Commerce Commission, the Federal Power Commission, and the Federal
Communications Commission are three; there are many others. In addition, agencies like the
Department of Defense often include provisions in their contracts that affect financial reporting
by suppliers of goods and services. We believe that the process by which these various
regulatory actors have influence is well described by the concept of coercive isomorphism
(DiMaggio and Powell, 1983). Consistent with the concept of the legal environment (Edelman,
1990), we view the isomorphic pressures of law broadly, including both direct legal mandate and
such actions as litigation, legislative and administrative initiatives, and exercise of the bully
pulpit. In terms of motivation, we again follow Schneiberg and Bartley (2001). Thus, we claim
that regulatory action can be explained in terms of interest group theory, with a focus on
protecting the interests of consumers, broadly defined.
Table 1 summarizes these claims about the important actors, the mechanisms of their
influence, and their aims in exercising that influence. In the next section we apply these claims
in the context of lobbying the FASB to affect the content of specific regulatory changes. We
make predictions about how attention is structured and predict that the influence of these three
actors over outcomes at the FASB will vary by the type of decision.
TABLE 1: ORGANIZED ACTORS
Group Source of Type of Aims of
Power: Isomorphism Action
Profession Certification; Normative: Reduce
control of What is conflict;
principles. appropriate influence
Firms Control of Mimetic: What Regulatory
financial is prevailing capture.
Regulators Enforcement Coercive: Protecting
of legal Requirements the public
requirements of law? interest.
The Central Role of the Profession
Our emphasis on the role of professional actors in the legal environment extends a long
tradition in the institutional literature. We explicitly model professionals as providers of
normative justification for the passage of new regulations. In terms of process, we expect the
dynamics to be similar to those discussed by Mezias and Scarselletta (1994). We rely on their
evidence about the cooperative relations of regulators and firms with the profession. In their
study of how professionals keep items off the agenda of the FASB, they found evidence that a
variety of mechanisms as well as characteristics of the decision making process itself were
important to shaping the attention of constituencies and the FASB. Based on this evidence, we
expect professionals, acting through associations, the major firms, and the FASB, to shape
attention in the process of creating new financial reporting regulations.
The manner in which we distinguish levels of attention to specific issues is fundamentally
consistent with the distinction between stronger and weaker regulatory intervention used by
Schneiberg and Bartley (2001). In applying their distinction, our study refines it in several ways.
A first follows from the level of analysis at which we study actual change to explicit and direct
regulatory rules. The model developed by Schneiberg and Bartley (2001) was applied to
understand the decision to regulate a market at the level of the fifty individual states of the US.
We take a similarly dynamic approach to understand regulatory outcomes, but do so at the
federal level of analysis (Abzug and Mezias, 1993). A second set of differences follows from the
previous focus on the decision to regulate. Without suggesting in any way that the decision to
regulate is not a distinctive and important outcome, we emphasize a different set of outcomes –
those related to ongoing changes in the content of regulation in the context of an existing
Within this context, we distinguish two types of changes to existing regulation in terms of
the structuring of attention. The first and more frequent type of change is incremental; these
changes consist of little more than minor amendments to existing regulation or narrowly industry
specific pronouncements (Briloff, 1986; Tandy and Wilburn, 1992). For example, following the
high inflation of the late 1970s, some companies, in this case companies holding timberlands and
growing timber, were the subject of regulatory change. The result was a new pronouncement
regarding the impact of changing prices on financial reporting for the “specialized assets” of
timberlands and growing timbers. Relatively few firms were impacted and the implications for
the practice of financial reporting, auditing, and certification were limited. Regulation specific to
these firms was justified by the notion that they held specialized assets; the implication, of
course, is that they are otherwise “normal.”
We describe the process of incremental change to regulation as codified self-regulation of
the market. We use the term codified because firms work with the accounting profession to
bring the proposed rule under the umbrella of the exclusive license granted the accounting
profession by the state. By creating a new regulation of this type, a small group of firms can
embed their preferred practices as part of generally accepted accounting principles. We describe
it as self-regulation because the firms themselves are an important determinant of the content of
The second type of change, which we term substantive change, is much less frequent and
represents fundamental change to existing regulation that will affect the practice of many
existing firms. Recent proposals to force all firms that grant stock options to record some
expense for this on their financial statements would be an example of a substantive change to the
content of regulation. By sorting issues into the categories of codified self-regulation or
substantive change to the content of regulation, the accounting profession prestructures policy
decisions. The result is that the attention to issues is fundamentally altered.
Hypothesis 1: The structure of attention will differ across codified self-regulation and
We have argued that professionals structure attention to particular regulations; however,
their influence is not limited to mere design of process. They are also active participants,
providing different types of normative justification for a variety of regulatory decisions. In the
case of substantive changes; accounting professionals provide the normative justification for the
restoration of legitimacy and the logic of good faith. This enhances the passage of substantive
regulatory initiatives by providing a justification and rationale for proposed changes. In the case
of codified self regulation we view the role of the accounting profession as partners in capture
theory as envisioned by Schneiberg and Bartley (2001). We argue that firms and professionals
work together to create codified self-regulation: state sanction of the preferred financial reporting
practices of firms. As with the judicial endorsement of firm practice described by Edelman
(1994) in her study of the evolution of compliance with affirmative action mandates, we see
professionals working with firms to obtain state sanction for specific practices.
We go a step further by analyzing the central role of the accounting profession in terms of
their consistency with the lobbying positions of both regulators and firms and in reducing
conflict. According to the regulatory field argument, public policy is dominated by a small
group of organized actors operating in interconnected networks (DiMaggio and Powell, 1983).
Mezias and Scarselletta (1994) found evidence to support this claim in the context of financial
reporting regulation. While the institutional perspective is not the first to notice these policy
networks (Heclo, 1978; Schlozman and Tierney, 1986), it does pull together ideas from a diverse
set of fields to emphasize the central role of professionals in the networks that shape public
policy. The first is the notion that individual behavior is not driven exclusively by self-interest.
DiMaggio and Powell (1991: 15-19) argued that accounts of what motivates individual behavior
in institutional theory constitute a theory of action. Specifically, the institutional perspective has
had a central focus on taken-for-granted scripts, rules, and classifications that make actors think
in more homogeneous ways and facilitate shared typifications. The second important idea is the
dominance of professional actors in the networks that shape policy. Taken together these ideas
imply a theoretical emphasis on how the larger environment directs organizations and
individuals, creating the lenses through which these actors view the world and providing
categories of structure, action, and thought.
The first implication of these ideas is that the process will not generally be characterized
by conflict. Meyer and Rowan (1977: 357-359) emphasized the shared nature of social
processes, discussing elaborate displays of confidence, satisfaction, and good faith by actors both
internal and external to organizations. The legitimacy of organizations and complex social
processes depend on ceremonial inspection and evaluation, also promoted by actors both external
and internal to the organization (Meyer and Rowan, 1977). We believe that these category-based
guides to behavior function as an important source of agreement. The argument is
straightforward: Ceremonial assessment requires the social construction of classification
schemes and judgment rules that all (or at least many) parties share. The relevance of this
argument to accounting regulation was suggested explicitly by Meyer and Rowan (1977:
“... modern accounting creates ceremonial production functions and maps them onto economic
production functions: organizations assign externally defined worth to advertising departments,
safety departments, managers, econometricians, and occasionally even sociologists, whether or
not these units contribute measurably to the production of outputs.”
By extrapolation, regulatory decision processes will be characterized by the logic of good faith,
the logic of confidence, and agreement regarding the criteria to be used for ceremonial inspection
and evaluation. As a result, participants in the process will tend to agree and cooperate on many
Institutional theory also has had an explicit focus on the rise of professions and the
consequent rationalization of social relations (Meyer and Rowan, 1977; Meyer and Scott, 1983;
DiMaggio and Powell, 1983; Galaskiewicz, 1985; Edelman, Abraham and Erlanger, 1992;
Lawrence, 1999). Meyer and Rowan (1977) explicitly linked the professions with the logic of
good faith, which predisposes actors to agree, and ceremonial assessment, which requires
agreement on aspects of process. The success of the Certified Public Accounting (CPA)
profession suggests the importance that professional identities can play, transcending identities
imposed by other obligations, such as membership in particular organizations or interest groups
(Larson, 1977; Scott, 1983, 1987a; Galaskiewicz, 1985). Indeed, Mezias and Scarselletta (1992)
provide evidence that most participants in FASB processes have certification as accountants even
if they are acting as representatives of other groups, such as the management of large firms or
regulators. Tolbert (1988: 104) described one effect of this common professional identity,
arguing that membership in a profession provides “...a common culture, in the sense of shared
definitions of problems and common repertoires for managing those problems.” Shared
professional identities as certified public accountants may be another important factor facilitating
We also expect conflict to be minimized because of several sources of agreement among
members of a policy making network that have been suggested by the new institutionalism in
political science. In particular, this literature has developed a view of policy making as
occurring in networks of full-time, expert participants who coalesce around specific issues. Like
the focus on interpenetration elaborated by Meyer and Rowan (1977), contemporaneous
literature emphasized the porous nature of relations in policy networks and sources of agreement
among the participants (Heclo, 1978; Schlozman and Tierney, 1986). Kingdon (1984: 124)
argued policy is conducted in issue networks populated by specialists who share a concern about
particular and well-defined areas of policy and interact with one another frequently. With
respect to the health field, he described how specialists gathered at seminars sponsored by
foundations to “... hear presentations, think about common problems, and meet one another in a
quasi-social context. In the process, they exchanged information, developed more common ways
of looking at problems, and cultivated their informal contacts in the health network.” Berry
(1984), Bendor (1987; 1988), and Bendor, Taylor, and Van Gaalen (1987) argued for the
importance of networks of expertise and agreement in understanding bureaucratic policy making.
March and Olsen (1989: 97-98) offered a similar view of public policy formation: “Public policy
making and the administration of public programs have been turned over to a network of
collegial bodies in which civil servants, experts, and the representatives of organized interests are
the major participants.”
Taken together, these arguments form a compelling institutional rationale to low levels of
conflict. Category-based guides to behavior and collective strategies such as ceremonial
assessment and evaluation require extensive agreement to be functional. The spectacular success
of the accounting profession has provided an important source of shared identity among
participants in the process. Finally, the policy-making network structures interaction in ways
that encourage long-term, collegial interaction. The result is that there will be relatively little
conflict among the three organized actors who are influential in the regulatory process.
Hypothesis 2: The process for both incremental and substantive changes to regulation will
characterized by high levels of agreement, with the accounting profession in the central role.
The first and more common type of change is what we term codified self regulation,
which is depicted in Figure 2. These regulatory changes are brought about by the rise of a
problem in the practice of financial reporting. Sometimes these practice problems arise because
of lack of clarity or applicability of previous regulations. These are corrected by minor changes
to existing regulation; Briloff (1986) and Tandy and Wilburn (1992) call these regulatory
changes amendments. The other type of practice problem that may trigger a non-substantive
change to the content of regulation is when a practice problem arises that only affects a small set
of firms. Rules governing transactions or practices that only occur in a fairly narrow context,
such as timber and timberlands are an example. Briloff (1986) and Tandy and Wilburn (1992)
call these industry specific standards. We group both of these kinds of regulatory changes
together as codified self-regulation because they have a fundamental similarity in terms of the
involvement of organized actors. The resolution of both types of practice problems do not
mobilize public interest; as a result, the public and regulators tend not be very attentive to the
process of issuing these new regulations.
FIGURE 2: CODIFIED
PREVIOUSLY PASSED SPECIAL
SUBSTANTIVE RULE CIRCUMSTANCES
MODIFIED OR OF ONE INDUSTRY
CLARIFIED REQUIRES RULING
PROFESSIONALS AND FIRMS WORK
TOGETHER TO DEVELOP SOLUTION TO
SUBMIT FOR REGULATORY APPROVAL
SELF REGULATION OF THE MARKET
We believe that these rule changes do not represent a significant exercise of the coercive
power of the state. Rather, the important processes determining the content of such rules will be
the trade-off between the normative, what should be, and the mimetic, what is. This trade-off
will be managed in a cooperative effort involving firms and the accounting profession. This
leads directly to two hypotheses
Hypothesis 3: The financial reporting practices advocated by firms are more likely to be adopted
in the process of codified self-regulation.
Hypothesis 4: The financial reporting practices advocated by the accounting profession are more
likely to be adopted in the process of codified self-regulation.
Substantive Changes to Regulations
Substantive change to the content of regulation is less common and involves different
mechanisms by which the contents of new regulations are influenced; our arguments are
summarized in Figure 3. As we see it, substantive changes to regulation begin with legitimacy
crises; the crisis triggered by the occurrence of the two largest bankruptcies to that point in US
history during the first several months of 2002, Enron and Worldcom, is an example. These
crises are met with sustained public outcry; in the case of the above example, this outcry was
intensified by and reflected in nonstop stories in the media about stockholder losses, layoffs, the
loss of confidence, and the crash of prices in the securities markets.
These forces come together to create a demand for substantive change to regulation;
efforts to effect this change will be spearheaded by regulators, scrambling to protect or at least be
seen as acting to protect the public interest. The changes advocated by regulators in this role will
require significant and widespread change to existing organizational practices. For this reason,
we believe that regulators will not act alone. The imprimatur of professional certification will be
particularly important in the justification of new regulations with such impact. Thus, regulators
will seek and obtain the assistance of members of the accounting profession. Perhaps most
importantly, this will be true because the profession or some subpart of it is able to offer
persuasive rationales to restore the legitimacy and trust lost in the crisis. Continuing with the
example above of the giant bankruptcies, this can be seen in the restoration of those members of
the accounting profession who had advocated the separation of auditing and consulting services
at accounting firms. Thus, the accounting profession remained influential despite the criminal
finding against one of the large accounting firms, Andersen, in the course of the scandal.
FIGURE 3: SUBSTANTIVE CHANGES
MOBILIZATION OF INTEREST GROUPS
DEMANDING SUBSTANTIVE CHANGE
PROFESSIONAL AND GOVERNMENT
ACTORS OVERCOME THE OPPOSITION
OF FIRMS TO INTERVENE AND SUBJECT
MARKET TO NEW REGULATION
In political terms, the reason for the alliance between regulators and the profession can be
cast as the only feasible coalition to overcome the opposition of firms. We expect that the
representatives of large firms will oppose substantive changes. Instead, they will advocate rules
that represent minimal or no change from current practice and justify this in terms of the mimetic
rationale of precedent. In the wake of legitimacy crises and the public outcry that accompanies
them, however, the certainty of crisis outweighs the uncertainty reducing properties of relying on
precedent: The logic for changing the status quo is clear. Thus, we expect the alternatives
advocated by firms will be rejected in the course of creating substantive change to regulations.
Hypothesis 5: The financial reporting practices advocated by regulators are more likely to be
adopted in the process of substantive regulatory change.
Hypothesis 6: The financial reporting practices advocated by the profession are more likely to
be adopted in the process of substantive regulatory change.
Hypothesis 7: The financial reporting practices advocated by firms are less likely to be adopted
in the process of substantive regulatory change.
THE EMPIRICAL STUDY
We constructed our operational measures by sampling from the set of standards that had
been issued by the FASB. To legitimate its decisions, the FASB has adopted legalistic
procedures and a lengthy due process (Boland, 1982). An important point in this due process,
where participation and influence by various constituency groups is solicited most actively, is the
comment period. This period commences when the FASB releases an Exposure Draft describing
a proposed regulation; interested parties have a period of weeks or months to write letters of
comment that the FASB will consider before releasing the final standard. Because intense
communication among interested parties occurs at this time, the comment period was selected as
an arena for the study of how various organized actors interact to determine the evolution of
financial reporting standards (Mezias and Chung, 1989; 1991).
Now in place for nearly thirty years, the FASB has surpassed the lifespan of both of its
predecessor agencies, but not without significant changes from time to time. The agency and its
governance structure remained essentially the same through the late 1980s when there were
changes of great significance in the institutional environment. A first important change was the
beginning of a merger wave that reduced the number of the major accounting firms from the Big
Eight to the Big Five. Second, the voting requirements for the passage of new FASB regulations
were changed; prior to this change, a bare majority of four of seven Board members was
required. The new voting structure imposed the requirement for a supermajority of five of seven
for the passage of a new regulation. To avoid having these changes in the major players and
governance structure impact our results, we focus on the period from 1973 to 1987, prior to the
mergers of the major accounting firms and the voting rule change.
The focus of our study is the comment period, which begins with the release of an
Exposure Draft outlining a proposed regulation to be issued by the FASB. This document
describes the different financial reporting practices that the have been considered during the
decision process and provides public notification of the alternative favored by the Board; it is
followed by a fixed period of time during which members of constituency groups may write
comment letters in response. As an example, consider SFAS # 40 as presented in Table 2; the
Exposure Draft for this statement discussed four possible alternative financial reporting
practices, endorsing the first and rejecting the other three.
TABLE 2: Alternatives in the Exposure Draft of SFAS#40: Financial Reporting and
Changing Prices: Specialized Assets, Timberlands, and Growing Timbers
ALTERNATIVE 1: EITHER HISTORICAL COST (CONSTANT DOLLAR) AMOUNTS
OR CURRENT COST MEASURE SHOULD BE PERMITTED.
ACCEPTED IN FINAL STATEMENT.
ALTERNATIVE 2: THE STATEMENT SHALL REQUIRE MEASUREMENTS ON A
CURRENT COST BASIS. REJECTED IN FINAL STATEMENT.
ALTERNATIVE 3: THE STATEMENT SHALL REQUIRE INFORMATION ABOUT
FAIR VALUES, DEFINED AS THE PRICES THAT WOULD BE
ACCEPTED AS REASONABLE IN TRANSACTIONS BETWEEN
A WILLING SELLER AND A WILLING BUYER. REJECTED IN
ALTERNATIVE 4: THE STATEMENT SHALL EXEMPT ACTIVITIES THAT USE
TIMBERLANDS AND GROWING TIMBER FROM
REQUIREMENTS TO PRESENT INFORMATION ON A
CURRENT COST BASIS. REJECTED IN FINAL STATEMENT.
To determine which comment periods would provide the data for this study, we took a
random sample of 30 SFAS issued by the FASB between 1973 and 1987. All of our hypothesis
tests rely on the distinction between codified self-regulation and more substantive standards. To
determine which standards qualified as which type, we used the coding of Tandy and Wilburn
(1992) adapted from Briloff (1986). Using this coding, our sample included twenty-five cases of
codified self-regulation and five cases of substantive change.
To test Hypothesis 1, we needed a measure that indicated how attention is structured in
the process of issuing new regulations. To provide such a measure, we examined the due process
of the FASB. After an issue is admitted to the agenda of the FASB, decisions are made
regarding the necessity of engaging in any or all of four steps possible due process steps. These
include the following: (1) Forming a task force: The FASB may choose to ask persons with
various kinds of expertise on a particular issue to serve in a group that meets to consider the issue
that has been placed on its technical agenda. (2) Issuing a discussion memorandum: The FASB
may choose to prepare a formal document outlining preliminary ideas and logic concerning the
issue that has been placed on its technical agenda. (3) Having an invitation to comment: The
FASB may publicly announce its desire to hear from parties interested in the issue that has been
placed on its technical agenda as part of its early deliberations on the issue. (4) Holding a public
hearing: The FASB may choose to schedule a public meeting where it will hold discussions of
the issue that has been placed on its technical agenda with interested parties. Generally, these
steps occur prior to issuing an exposure draft. Consequently, they can be seen as part of the
context that structures the attention from organized actors reflected in the letters of comment
after the exposure draft is issued. We used a count of the total number of due process steps
executed for a particular standard as our measure of the structuring of attention; this variable is
called Due Process.
The remaining hypotheses address the issue of opinions expressed by members of the various
organized actors regarding the content of the exposure drafts. To code the letters to determine
the positions taken in lobbying, we began by determining what alternatives were discussed in the
exposure drafts. For the 25 standards that represent codified self-regulation, the exposure drafts
discussed 114 alternatives. This is the sample for our analyses of influence over the content of
codified self-regulation. For the 5 standards that represent substantive change, the exposure
drafts discussed 37 alternatives. This is the sample for our analyses of influence over the content
of substantive changes to regulation.
We coded letters as being in favor or against these alternatives as follows. We began by
using the classification of comment letters sent to the FASB into the three organized actors. In
its own deliberations, the Board classifies letters into categories that correspond to our organized
actors; we used their classifications. We immediately faced the question of how to use letters
written by members of these organized actors to create variables indicating the opinions
expressed by organized actors about various alternatives. A first important operational decision
was the development of a coding scheme to record the positions taken in individual letters. We
read approximately fifteen letters from the comment periods of regulations not included in our
sample to derive three straightforward coding rules. First, if a letter stated explicit support for or
opposition to a specific alternative, then it was recorded as favoring or opposing that alternative.
Second, if a letter contained a clear statement of support for the Exposure Draft, it was coded as
favoring alternatives advocated by the FASB in the Exposure Draft. Third, if a letter contained a
clear statement of opposition to the Exposure Draft, it was coded as opposing alternatives
advocated by the FASB in the Exposure Draft.
This coding scheme recognizes that one letter may mention several alternatives; thus, a
single letter may count as being in favor or against multiple alternatives. Conversely, not all
letters in response to an Exposure Draft mentioned all alternatives. In every case, opposition or
support was determined from specific language in the letter using the three rules outlined above.
Only letters that contained statements that conformed directly to these three rules were counted
in creating the variables. There was never a case where a position coded based on one of these
three rules contradicted a position coded by applying one of the other rules. There were cases
where a position coded based on one rule would be duplicated by applying another rule but we
did not double count. Once a letter had counted for or against an alternative under one of these
rules, this position was not counted again with respect to that alternative even if it qualified
under one of the other two rules. Finally, there were a very few cases where the decision was
made to eliminate a letter from the sample because it was too ambiguous to code using these
rules. Of the hundreds of letters read, no more than ten were eliminated for this reason; for most
Exposure Drafts, not a single letter was eliminated. To verify that these narrow text-based rules
resulted in high reliability, all of the letters received in response to the Exposure Draft for SFAS
# 22, chosen at random, were read by both authors. For over 95% of these letters, the assessment
of the text was identical for the two authors. Following the confirmation of this extremely high
level of reliability and given the large number of letters, we used single rater coding for the
letters written regarding the thirty regulations in our sample.
A second important decision concerned how to combine the opinions coded from
multiple letters to create a measure of the overall opinion of the organized actors regarding
alternatives discussed in the Exposure Drafts. We interpreted an institutional perspective to
suggest that the default assumption about members of the organized actors lobbying the FASB
should be one of structural equivalence, emphasizing similarity among members of the organized
actors. This is consistent with how these letters are handled during the due process of the FASB:
By the end of the comment period, they have been collected into binders, sorted by cateogry, and
are available for review by all personnel of the organization. At the same time, FASB personnel
espouse the view that the comment period is not an election, making it clear that high quality
letters have much more impact (Beresford and Van Riper, 1992). However, we believed that
deviation from the assumption of structural equivalence should be based on a clear theory and
the availability of accurate measures. We lacked a compelling theory of what constitutes a high
quality letter to help us calculate a metric other than equal weighting.1 If a letter was in the
public record of comments from an organized actors, we regarded it as affecting the perception
of the opinion of that organized actors in subsequent Board deliberations; thus, all letters were
counted as they are presented in official records: one for one.2
We combined the positions for or against particular alternatives coded from letters from
members of each group to create a measure of the overall opinion of alternatives by particular
groups. The formula for this measure, called Percent Opinion, was:
(LETTERS FOR – LETTERS AGAINST)
PERCENT OPINION =
(LETTERS FOR + LETTERS AGAINST)
It could range from minus one, unanimous opposition, to positive one, unanimous
support. This gives us summary measures of the overall opinion of each organized actor with
We also do not have the data necessary to examine processes such as reputation or network centrality that
might imply deviations from equal weighting of letters, which is a limitation of our study. As we make clear in
our discussion of implications of our work for future research, we do believe this issue merits investigation.
For Exposure Drafts with less than 100 letters of comment, all letters were read. For Exposure Drafts with
between 100 and 200 letters of comment, every other letter was read; for those with between 200 and 300 letters
of comment, every third letter was read.
respect to each alternative in the sample. Moreover, because this measure is a percentage, it is
comparable across alternatives and across organized actors. The Percent Opinion figure was
calculated for all three organized actors with respect to the alternatives discussed in the Exposure
Drafts for both incremental and substantive changes. These are the variables that will be used to
test the hypotheses; they will be labeled as we have labeled the organized actors Professionals,
Firms, and Regulators.
To test Hypothesis 1, we examine data that provides a contrast between codified self
regulation and substantive changes to regulation. We look at this in terms of an input measure:
How the professionally dominated FASB structures due process for specific issues. Specifically,
we look at the number of steps in its due process are executed. Based on Hypothesis 1, we
expect the number of due process steps to be different for codified self-regulation and for
substantive standards. Given that substantive changes stem from legitimacy crises and the public
outcry that accompanies them, we expect that the number of due process steps for substantive
standards will exceed the number for codified self-regulation.
To test the remaining hypotheses, we ran regression models using the percent opinion
variables. To test Hypothesis 2, we examine the patterns of interdependence among the percent
opinion variables of the three organized actors using linear regression. To assess the level of
agreement among the organized actors in their advocacy of various policy alternatives, we once
again use the percent opinion variables we created for each. We run three multiple regressions;
each has the percent opinion variable of one of the organized actors as a dependent variable with
the other two percent opinions as explanatory variables. We interpret Hypothesis 2 to imply that
the percent opinion variable of the professionals will have significant, positive explanatory
power as an independent variable for both firms and regulators. Further, since the percent
opinion variables are measured in the same units, we would predict that the size of the
coefficients for the professional percent opinion as an independent variable should be larger than
those for firms or regulators.
For the remaining hypotheses, we run regression models to predict FASB decisions about
each alternative. The independent variables in this regression will be the Percent Opinion
variables described above. The dependent variable was a categorical representation of the
decision by the FASB for each of the alternatives in the Exposure Drafts. This variable was
coded zero if the alternative was rejected in the final SFAS issued by the Board; it was coded one
if the alternative was accepted. This categorical dependent variable is called Choice in the
analysis; an equation of the following form was estimated using maximum likelihood logistic
Choicei = β 0 + β 1Professionalsi + β 2 Firmsi +β 3 Regulatorsi + ε i
where i designates the alternative. This equation is estimated first for codified self regulation, n
= 114; then it is estimated for substantive changes to regulation, n = 37.
Hypotheses 3 and 4 are tested directly by examining the coefficients from the estimation
of the model including only alternatives from the codified self-regulation sample. Support for
the hypotheses is indicated if the coefficients on the variables for the percent opinion of
professionals and firms are significantly greater than zero. Hypotheses 5, 6, and 7 are tested
directly by examining coefficients from the estimation of the model including only alternatives
from the substantive change sample. Hypotheses 5 and 6 are supported if the coefficients on the
variables for the percent opinion of regulators and professionals are significantly greater than
zero. Support for Hypothesis 7 is indicated if the coefficient on the percent opinion variable for
firms is significantly less than zero.
With a random sample and treating all of the standards in our samples as equal, we have
not taken account of the fact that some regulatory decisions attract much more attention than
others. To control for possible effects of attention to an issue, beyond the separation of codified
self-regulation and substantive changes, we introduced a variable intended to measure attention.
It is a count of total letters submitted to the FASB in response to the Exposure Draft for each of
the rules in our sample; it is called Letters in the analyses. Also, because we looked at FASB
decisions over a period of about fourteen years, we were concerned that the process might
change during this period, despite the fact that we purposely constructed a window of time to
avoid major process changes. To control for possible effects of the passage of time during our
study period, we introduce a control variable called Months. The variable is a count of the
number of months between the release date of the Exposure Draft that corresponds to a particular
alternative and the release date of the earliest Exposure Draft in our sample.
Descriptive statistics along with correlation information for all the variables are reported
in Tables 3, 4, and 5. Table 3 presents the data at the analysis of the individual standards for
evaluation of Hypothesis 1 concerning the structuring of attention. The range of due process
steps appears similar across both types of standards, but the mean number for substantive
standards is large. Turning to Tables 4 and 5, it is clear that the means of all the percent opinion
variables are negative, indicating that letters on average expressed opposition to alternatives.
This is consistent with actors being more likely to write to oppose an alternative than to support
an alternative. There are significant and fairly large correlations among the independent
variables for the several regression equations that we need to run to test our remaining
hypotheses, suggesting the possibility of multicollinearity. To assess the potential effects on any
of the coefficients, we followed the advice of Johnston (1984: 249-250) and computed the
condition indices for the matrix of independent variables in our estimation equations. This index
measures the extent to which independent variables have variation independent of one another by
taking the ratio of the highest and lowest eigen values from the inverse of the variance-
covariance matrix. Belsley, Kuh, and Welsch (1980), who developed the measure, suggested
that multicollinearity problems in estimating the effects of the independent variables are
indicated by condition indices in excess of 20; the largest condition index for our independent
variables is 7.48. Therefore, we conclude that despite the presence of some significant and fairly
large correlations, none of the estimates of the effects of the independent variables were affected
unduly by collinearity.
TABLE 3: DUE PROCESS STEPS
Codified Self- Substantive
N 5 5
Minimum 0 0
Maximum 3 4
Mean 0.6 2.0
Standard Deviation 1 1.87
TABLE 4: Correlations and Descriptive Statistics
Codified self-regulation, n = 114
Variables Means s. d. Choice Professionals Regulators Firms Letters
Choice 0.3982 0.4917
Professionals -0.1739 0.7274 0.6184
Regulators -0.0442 0.6599 0.3299 0.4189
Firms -0.2026 0.7044 0.5800 0.6245 0.3640
Letters 92.41 70.72 -0.0537 -0.1206 -0.0582 -0.1397
Months 72.63 30.29 -0.0661 -0.1544 -0.0053 -0.1476 0.0729
TABLE 5: Correlations and Descriptive Statistics
Substantive standards, n = 37
Variables Means s. d. Choice Professionals Regulators Firms Letters
Choice 0.4211 0.5004
Professionals -0.1788 0.7567 0.4620
Regulators -0.1360 0.7289 0.6429 0.6372
Firms -0.1814 0.6455 0.2249 0.8899 0.4825
Letters 166.16 62.958 -0.0090 -0.1023 -0.1101 -0.1917
Months 62.52 50.80 0.1708 0.1873 0.1785 0.2753 -0.5888
We proceed with the regressions of percent opinions of the various organized actors with
the percent opinions of the other organzied actors as independent variables to test Hypothesis 2.
Results are reported separately for codified self-regulation and substantive standards in Tables 6
and 7. These tables show that the professionals seem to be the opinion leaders in the
development of lobbying positions expressed in letters of comment to the FASB. In table 5, we
report the results of regressions for codified self-regulation standards. We see that the
Professionals variable is a significant predictor of both the percent opinions of firms and
regulators. Neither Firms nor Regulators is a significant predictor of both of the other percent
opinion variables. In addition, the Professionals variable has the second and third largest
coefficient of any of the variables in the equations for codified self-regulation.
TABLE 6: AGREEMENT ON
CONTENT OF CODIFIED
Percent Opinions Agreement/Disagreement
Non-Substantive Only (Industry and Amendment)
Dependent β2 Professionals β4 Regulators β1 Firms R-Square
Professionals 0.2476** 0.5452** 0.4385
Regulators 0.2913** 0.1628 0.1974
Preparers 0.5372** 0.1364 0.4099
+ p<.10, * p<.05, ** p<.01
In Table 7, we report the results of regressions for substantive standards. Again, we see
that the Professionals variable is a significant predictor of both the percent opinions of firms and
regulators. In addition, the variable has the single largest coefficient of any of the variables in
the equations for substantive standards. Its coefficients overall are the first and third largest of
the six estimated for this analysis. Across both regression equations, we find that all four of the
percent opinions are above the median for the twelve coefficients estimated. A sign test of the
probability of this happening by chance is reveals the null hypothesis of no difference in the
coefficients is reject, p < 0.01 despite a sample size of only 12. Clearly, the accountants are the
opinion leaders in the network for policy making at the FASB. In addition, the cooperative
nature of the network is revealed by the patter of coefficients. Among those that are significant,
every single one is positive. Again, a sign test is informative. We test the null hypothesis that
significant coefficients are equally likely to be positive or negative; this is rejected, p < 0.01,
again despite a sample size of only 12.
TABLE 7: AGREEMENT ON
CONTENT OF SUBSTANTIVE
Percent Opinions Agreement/Disagreement
Substantive Standards Only
2 Professionals β 4 Regulators β1 Firms R-Square
Professionals 0.2853** 0.9140** 0.8551
Regulators 0.9990** -0.5342 0.4532
Firms 0.8245** -0.1376 0.8204
+ p<.10, * p<.05, ** p<.01
We proceeded with the maximum likelihood estimation of the logistic regression
equations to predict FASB choices; results are given in Tables 8 and 9. From these tables,
support for the last five hypotheses can be assessed; we begin by reviewing the results for
codified self-regulation reported in Table 8. As predicted in Hypothesis 3, lobbying by firms has
a statistically significant association with decisions by the FASB. The t-statistic on the
coefficient for the percent opinion of firms suggests that its value is significantly greater than
zero, p < 0.01. The greater was the value of the percent opinion expressed by firms in their
letters, the more likely an alternative was to be adopted by the FASB. Conversely, the more
negative was the opinion they expressed, the less likely an alternative was to be adopted by the
FASB. As predicted by Hypothesis 4, lobbying by the accounting profession has a statistically
significant association with decisions by the FASB. The t-statistic on the coefficient for the
percent opinion of the professionals suggests that its value is significantly greater than zero, p <
0.01. The greater was the value of the percent opinion expressed by professionals in their letters,
the more likely an alternative was to be adopted by the FASB. Conversely, the more negative
was the opinion they expressed, the less likely an alternative was to be adopted by the FASB.
TABLE 8: CODIFIED SELF
Results of Maximum Likelihood Logistic Regression
Non-Substantive (Industry and Amendment) Standards
ORGANIZED COEFFICIENT STD. ERROR t VALUE
CONSTANT -0.4551 0.4433 -1.0267
PROFESSIONALS 0.9999 0.2633 3.7968**
REGULATORS 0.1008 0.2374 0.4245
FIRMS 0.8268 0.2549 3.2440**
LETTERS 0.0014 0.0022 0.6208
MONTHS 0.0037 0.0051 0.7245
* p<.05, ** p<.01 n = 113
Some of the other results are also informative about the process. The constant is not
significant; this is consistent with the lack of any pattern absent the input of organized actors
during the lobbying. The FASB presents itself as responding to external constituencies (Miller
and Redding, 1986); the lack of a significant constant is consistent with that. The lack of
influence of regulators over the codified self-regulation process is also interesting. Of course, it
would appear from the descriptive statistics that one of the reasons that regulators have relatively
little influence is that they tend to have a percent opinion much closer to zero for codified self-
regulation than for substantive standards. Finally, neither of the control variables is significant.
The decisions of the FASB do not have a systematic time pattern, as indicated by the lack of
significance for Months. Within the set of standards represented by codified self-regulation,
there was no variance according to how many letters of comment were written about a specific
standard, as indicated by the lack of significance for the variable Letters.
TABLE 9: SUBSTANTIVE
Results of Maximum Likelihood Logistic Regression
Substantive Standards only
ORGANIZED COEFFICIENT STD. ERROR t VALUE
CONSTANT -1.8631 1.6200 -1.1501
PROFESSIONALS 2.0212 0.9784 2.0659*
REGULATORS 1.5798 0.6391 2.4718**
FIRMS -2.3481 1.0962 -2.1421*
LETTERS 0.0054 0.0072 0.7478
MONTHS 0.0107 0.0078 1.3732
* p<.05, ** p<.01 n = 38
The results for substantive standards are reported in Table 9. As predicted in Hypothesis
5, lobbying by regulators has a statistically significant association with decisions by the FASB.
The t-statistic on the coefficient for the percent opinion of firms suggests that its value is
significantly greater than zero, p < 0.01. The greater was the value of the percent opinion
expressed by regulators in their letters, the more likely an alternative was to be adopted by the
FASB. Conversely, the more negative was the opinion they expressed, the less likely an
alternative was to be adopted by the FASB. As predicted by Hypothesis 6, lobbying by the
accounting profession has a statistically significant association with decisions by the FASB. The
t-statistic on the coefficient for the percent opinion of the professionals suggests that its value is
significantly greater than zero, p < 0.01. The greater was the value of the percent opinion
expressed by professionals in their letters, the more likely an alternative was to be adopted by the
FASB. Conversely, the more negative was the opinion they expressed, the less likely an
alternative was to be adopted by the FASB. Finally, as predicted by Hypothesis 7, lobbying by
firms has a significant, p < 0.05, negative effect on decisions by the FASB. The more negative
was the opinion expressed by firms in their letters of comment, the more likely was the FASB to
adopt an alternative in the final standard.
Once again, some of the other results are also informative about the process. The
constant is not significant; this is consistent with the lack of any pattern absent the input of
organized actors during the lobbying. Across both codified self-regulation and substantive
standards, FASB decisions seem to have no statistical pattern absent the inputs of external
constituencies. Once again, neither of the control variables is significant. As with codified self-
regulation, the variable Months is not significant. We conclude that the decisions of the FASB
with respect to substantive standards do not have a systematic time pattern. Similarly, we
conclude that there was no variance in FASB decisions regarding substantive standards
according to how many letters of comment were written about a specific standard. As with
codified self-regulation, this is indicated by the lack of significance for the variable Letters.
The results from our analyses uniformly supported the predictions we derived from the
regulatory field model, particularly the distinction between codified self-regulatoin and
substantive standards. This was true despite small sample sizes, particularly for the tests of
Hypotheses 1 and 2 but also for the regression analyses of substantive standards. In fact, the
comparison of coefficients to test Hypothesis 2 was based on only twelve coefficients. The
comparison between due process steps was based on a sample size of five for the substantive
standards and twenty-five for codified self-regulation. The regression analyses for substantive
standards had a sample size of only thirty-seven. Despite these small numbers, we found
significant statistical support for all of our hypotheses. This speaks to the strength of the
underlying processes that we were trying to measure.
At the same time, there are some limitations to our study that should be kept in mind as
the results are interpreted. First, we examined only cases of actual regulatory change; items that
never made it onto the agenda of the FASB could not enter our sample. Agenda control has long
been understood as a significant potential source of influence over public policy processes
(Bachrach and Baratz, 19??). Mezias and Scarselletta (1994) provided evidence of how the
FASB uses a professionally dominated task force to deal with many issues, keeping them off the
agenda of the FASB. Clearly, the issues that do eventually become new regulations are
relatively few, and we should be clear that we have not sampled from the universe of possible
rules, but from the universe of actual rules. This is mitigated somewhat by the fact that our
results are consistent with the process dynamics studied by Mezias and Scarselletta (1994): We
also find that the process tends to be characterized more by agreement and cooperation than
disagreement and conflict, particularly the process of codified self-regulation.
The question of whether organized actors agree in the process of passing substantive
standards reveals a complex dynamic: The answer is not necessarily. In fact, the failure of
Regulators and Firms to agree highlights the central role of the accounting profession in this
network of influence. We observed above that organized actors that agreed tended to have
influence. A more precise statement about the relationship between influence and agreement is
the following: Organized actors that agree with Professionals are more likely to have influence.
It also seems fairly clear that the converse is true: Organized actors that do not agree with
Professionals do not have influence. These results suggest a dynamic and complex interaction
between agreement and influence; sorting this out will require richer data on how organized
actors work together than were collected for this study. We do not observe coalitions among the
organized actors or look at their interactions during and before the comment periods in our
sample; this limitation should be kept in mind in interpreting the agreement we find here. We
also believe that future work should investigate the role of issue formation and agenda control in
framing choice processes such as the one we studied here. Authors in the literature of issue
formation have argued that agendas can be conceptualized as important means of focusing
attention in organizations. They act as informational filters, allocating attention to some issues
rather than others (Dutton, Fahey, and Narayanan, 1986; Dutton, 1986; Dutton and Jackson,
1987; Jackson and Dutton, 1988). The potential importance of this process is highlighted by
those who have argued that agenda control -- being able to determine which issues are presented
and in what form – can be an important source of power (Bachrach and Baratz, 1962; Ordeshook
and Schwartz, 1987).
The prediction of disagreement derived from self-interest models received little support
from the results. One reason could be related to the validity of the assumptions about
membership in organized actors implicit in our study. By treating them as organized actors, we
have assumed that categorizations of letters by the FASB according to constituency groups
named in its mission statement corresponds with some real notion of membership. Perhaps
rational theories of group membership pertain only to associations that people join consciously,
not to status as a member of a constituency group as mentioned in the mission statement of the
FASB. Future work should examine processes within the organized actors, especially in terms of
examining the potential importance of group process, identification, and cohesiveness.
However, this does not change the fact that work in the political perspective has named these
very organized actors in their public choice models of lobbying to affect financial reporting
standards. Clearly, our findings cast doubts on a rationale for the formation of organized actors
focusing exclusively on the individual level self-interest of members. The functionalist logic of
this theory of group formation suggests that continuing lobbying activity by organized actors
indicates success in affecting the process (Newman, 1981). Yet, firms are very active in
lobbying against substantive standards despite the fact that they have a negative influence on
whether particular alternatives are adopted.
CONCLUSION AND IMPLICATIONS FOR FUTURE RESEARCH
Before presenting our conclusions, it is useful to point to several possible limitations on
interpretation of the findings: First, the study considered only the influence of a pooled measure
of the opinions of organized actors. It may be that influence processes respond to the identities
of individual letter writers even though our measures do not. For example, a letter from
Anheuser-Busch may have a very different effect than a letter from a local microbrewery.
Further, there may leaders in formal or informal networks operating within the organized actors
that we have studied that may have different influence than other members of the network.
Whether there are more complex effects can only be sorted out by future research with a
different design, but the possibility clearly represents a potential limitation to the general
applicability of our findings. Third, the study focused on only a single part of the long due
process exercised by the FASB. While evidence from Mezias and Scarselletta (1994) suggests
that at least one earlier phase in the due process is similarly cooperative, more complete study of
the entire process by which financial reporting rules are changed should be pursued. All of these
implications and limitations touch on the issue of cooperation among organized actors. While
we do not have the process data to look at actual cooperation, we believe that future work should
involve collection of process data that would facilitate a closer examination of actual
cooperation. Such data might be able to help distinguish between cooperation based in mutual
self-interest as opposed to cooperation rooted in taken-for-granted assumptions about legitimate
or appropriate action
Fourth, even generalizing within the confines of influence over incremental institutional
change, the findings concerning the influence of Professionals, Regulators, and Firms, in that
order, and the agreement among them must be viewed as tentative. Confidence in the findings is
bolstered by their consonance with previous historical, theoretical work (DiMaggio and Powell,
1983; Meyer and Scott, 1983); nonetheless, the findings are limited to a single regulatory field
and must be replicated in future research. Fifth and related, the assumptions necessary to
construct the percent opinion variables should be kept in mind in interpreting the results. A
deeper exploration of membership in organized actors and what it means would likely be
informative, especially if it allowed for exploration of approaches other than equal weighting of
members letters in aggregating to form the opinions of organized actors. Clearly, when both a
national association of organizations and a small firm write letters of comment, there is the very
real possibility that the influence they will have on the process will be different. Effects of
reputation and size need to be explored in future work to assess the robustness of our findings
here. Finally, the role of variance within organized actors might be explored more in future
work; one obvious area would be to investigate how group process, cross-actor agreement, and
The results of this empirical study suggest several conclusions and research implications.
The first conclusion is that strong support for the utility of the regulatory field framework,
including a focus on multiple levels of analysis and institutional strategies of membership and
standardization. Future research should be aimed at replicating these findings and extending
them to other organizational fields and institutional environments. A second research
implication concerns the role of professional identities in creating cohesion and agreement;
further investigation is warranted. A related conclusion derives from the finding of high levels
of agreement, which suggest an alternative approach to self-interest models of the regulatory
process. Agreement, shared information, and shared assumptions may be a primary means for
collective actors to narrow the areas of conflict and strategic behavior. Rational models of the
standard-setting process might benefit from allowing agreement to loom larger than in most
current analyses. We also highlight the need for further study of processes of institutional
reorientation and the roles of self-interest and levels of influence of various actors at these times.
While our distinction between periods of institutional convergence and reorientation was
important to framing our study, it also suggests that no theory of institutional change is complete
without empirical study of periods of fundamental institutional change. It may be the case that
high levels of cooperation among organized actors and the particular actors that are successful in
exerting influence over incremental institutional change would not characterize periods of
institutional reorientation. Further, it may be that the processes operating during these periods of
upheaval provide an important frame for understanding the process of influence over incremental
change studied here. It may even be the case that incremental change is unimportant in the
context of fundamental change, which may wipe the slate clean. Conversely, there may be
important links between incremental processes of change and the likelihood of and chances of
success in effecting fundamental institutional change. Only further study of both types of
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