Corporate governance and earnings management ... - CEREG

view which conducts to massive losses at the beginning of the investment cycle and even
better than the dynamic view that reduces the earnings all along the cycle (Richard, 2004a,
2004b).
Pooling was a good solution for the sake of results but not a good one for the sake of
balance sheet: it created “hidden reserves” (Johnson & Petrone, 2001, p. 101) which was
problematic in a context where firms will show their “strength” to their shareholders.
Furthermore it has a very bad reputation and prevented the comparability of results (Johnson
& Yokley, 1997; FASB, 1998, 1999; Johnson, 1999, p. 80). The new solution was optimal in
the sense that it offered nearly all the advantages of pooling without its defaults.
It is interesting to note that globally this solution was judged to be a good one by the
“elites” of the four countries at that time (see below).
4.2. U.S.A.
A fundamental question here is to understand why the US was the first to refute the static
solution (in a pure or even in a moderate way) and adopting first the dynamic solution then
switching to the actuarial one and why it took so long to the other countries to discover the
merits of these “modern” solutions.
As far as the US are concerned our study is in line with recent works of economists
especially those of Lazonick and Sullivan (LS in the rest if paper) (2000) and Aglietta and
Rébérioux (AR in the rest of the paper) (2004). These authors have shown that “corporate
governance for most US corporations from their emergence in the late nineteenth and early
twentieth century through the 1970s was based on the strategy of retain and reinvest” (LS, p.
24). They have also shown that during all this period the pressure of professional stock market
investors was very low (LS, p. 31) and that “top managers tended to be integrated with the
business organizations that employed them” (LS, p. 24) which means that the power was
generally, in the hands of block shareholders and banks. The merit of our study if any is to
show that this strategy of retain and reinvest has been nevertheless declining as far as the
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