Associate Professor of Business Administration
Karthik Ramanna joined the faculty of Harvard Business School in 2007 upon receiving his Ph.D. from the Massachusetts Institute of Technology. Currently an associate professor of business administration at HBS, Karthik has also held the school's Henry B. Arthur Fellowship, an appointment supporting the research and teaching of business ethics, and Marvin Bower Fellowship, an appointment to help faculty launch innovative new research agendas. Additionally, Karthik is a faculty associate in the Weatherhead Center for International Affairs in Harvard’s Faculty of Arts & Sciences and an editorial board member of the Journal of Accounting & Economics, Accounting, Economics & Law, and the Journal of Financial Reporting. Karthik teaches the first-year M.B.A. course “Leadership and Corporate Accountability,” where he is particularly involved in studying the responsibilities of business leaders worldwide in lobbying regulators and combating corruption. Previously, Karthik taught the first-year M.B.A. course “Financial Reporting and Control.” Occasionally, he co-teaches in HBS’s executive education programs (“Finance for Senior Executives”) and its doctoral programs. In November 2012, he helped launch “Leadership and Corporate Accountability—India” an executive program at HBS’s new classroom in India.
Karthik has research interests in two distinct, but interrelated, fields. The first is the political economy of accounting standard-setting. Accounting standards, in facilitating resource allocation across competing ventures, are central to the functioning of complex economies. Karthik’s research examines how corporate lobbying, regulatory ideologies, power politics, and other political incentives interact to shape the nature of accounting standards and financial reports. He has explored these ideas both in the U.S. (e.g., through studies of the Financial Accounting Standards Board) and in the context of accounting’s globalization, as seen through countries’ adoption of International Financial Reporting Standards. Karthik is also interested in the political economy of various conceptual ideas in accounting such as accounting conservatism and fair-value accounting.
The second field of Karthik’s research is corporate accountability. Motivated by evidence of special-interest capture of the accounting standard-setting process in the U.S. and abroad, he is interested in examining business leaders’ broader responsibilities to society, particularly when engaging in public policy. This stream of research explores, across countries, the role of transparency as an instrument of accountability, particularly in addressing corruption and building responsible models of corporate lobbying. The central thesis here is that theories of transparency from accounting can be applied to develop and improve systems of corporate accountability.
Karthik has published several articles and case studies in his areas of interest, including in Accounting, Economics & Law, Accounting Horizons, The Accounting Review, Harvard Business Review, Journal of Accounting & Economics, Journal of Accounting Research, and Review of Accounting Studies. His research has been awarded the Journal of Accounting & Economics’ Best Paper Prize and the American Accounting Association’s FARS Best Dissertation Prize.
The University of Chicago Press November 2015.
Prudent, verifiable, and timely corporate accounting is a bedrock of our modern capitalist system. In recent years, however, the rules that govern corporate accounting have been subtly changed in ways that compromise these core principles, to the detriment of the economy at large. These changes have been driven by the private agendas of certain corporate special interests, aided selectively—and sometimes unwittingly—by arguments from business academia. With Political Standards, Karthik Ramanna develops the notion of “thin political markets” to describe a key problem facing technical rulemaking in corporate accounting and beyond. When standard-setting boards attempt to regulate the accounting practices of corporations, they must draw on a small pool of qualified experts—but those experts almost always have strong commercial interests in the outcome. Meanwhile, standard-setting rarely enjoys much attention from the general public. This absence of accountability, Ramanna argues, allows corporate managers to game the system. In the profit-maximization framework of modern capitalism, the only practicable solution is to reframe managerial norms when participating in thin political markets. Political Standards will be an essential resource for understanding how the rules of the game are set, whom they inevitably favor, and how the process can be changed for a better capitalism.
Lawrence H. Summers, Harvard University, former US treasury secretary
“Generally accepted accounting principles (GAAP) was one of the most important financial innovations of the twentieth century. By tracing political influences on accounting, this important book shows that, if war is too important to leave to generals, accounting is too important to leave to accountants.”
Luigi Zingales, University of Chicago, author of A Capitalism for the People
“In this fascinating book, Ramanna shows how the design of key market rules is captured by vested interests. The pro-market lobby is overwhelmed by the power of the pro-business one, and we all lose as a result. A must-read for anybody interested in economics, politics, or more simply the health of our economy.”
Thin Political Markets: The Soft Underbelly of Capitalism
California Management Review Vol. 57, No. 2 (Winter 2015), pp. 5-19.
“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 flaw 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.
Towards an Understanding of the Role of Standard Setters in Standard Setting
Journal of Accounting and Economics Vol. 55, No. 1 (February 2013), pp. 66–90.
We investigate the effect of standard setters in standard setting. We examine how certain professional and political characteristics of FASB members and SEC commissioners predict the accounting “reliability” and “relevance” of proposed standards. Notably, we find FASB members with backgrounds in financial services are more likely to propose standards that decrease “reliability” and increase “relevance,” partly due to their tendency to propose fair-value methods. We find opposite results for FASB members affiliated with the Democratic Party, although only when excluding financial-services background as an independent variable. Jackknife procedures show that results are robust to omitting any individual standard setter.
Network Effects in Countries' Adoption of IFRS
The Accounting Review Vol. 89, No. 4 (July 2014), pp. 1517-1543.
If the differences in accounting standards across countries reflect relatively stable institutional differences, why did several countries rapidly adopt IFRS in the 2003–2008 period? We test the hypothesis that perceived network benefits from the extant worldwide adoption of IFRS can explain part of a country's shift away from local accounting standards. We find that perceived network benefits increase the degree of IFRS harmonization among countries and that smaller countries have a differentially higher response to these benefits. Further, economic ties with the European Union are a particularly important source of network effects. The results, robust to numerous alternative hypotheses and specifications, suggest IFRS adoption was self-reinforcing during the sample period, which, in turn, has implications for the consequences of IFRS adoption.
A Framework for Research on Corporate Accountability Reporting
Accounting Horizons Vol. 26, No. 2 (June 2013), pp. 409-432.
The International Politics of IFRS Harmonization
Accounting, Economics and Law Vol. 3, No. 2 (April 2013), pp. 1-46.