Is Warren Buffett's Commentary on Accounting, Governance and Investing Practices Reflected in the Investment Decisions and Subsequent Influence of Berkshire Hathaway?

49 Pages Posted: 29 Jun 2011 Last revised: 19 Sep 2013

See all articles by Robert M. Bowen

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Shivaram Rajgopal

Columbia Business School

Mohan Venkatachalam

Duke University - Fuqua School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: September 5, 2013

Abstract

We examine (i) whether the business practices of Berkshire Hathaway investees are consistent with Warren Buffett’s public statements on what constitutes good accounting, governance and investing practices and (ii) whether these practices are associated with Berkshire’s initial “selection” or Buffett’s subsequent “influence.” Compared to control firms, we find that Berkshire investees are highly likely to follow Buffett’s investment philosophy, somewhat likely to follow his preferred accounting, disclosure and compensation policies, but unlikely to follow the board-related governance practices that we can measure. Second, we find some evidence that the business practices of future Berkshire investees are more aligned with Buffett’s beliefs in the pre-investment period compared to control firms. Third, we find relatively modest evidence that investees improve a few of their business practices subsequent to Berkshire’s initial investment. However, overall, Buffett does not appear to be especially influential in the subsequent accounting, governance and investing decisions of Berkshire investees, likely because he has already taken into account the attributes he cares most about in the initial investment decision.

Keywords: Accounting practices, compensation, governance, transparency, investment, financing, selection, influence, activism, board composition

JEL Classification: G10, G11, G30, G31, G34, M41

Suggested Citation

Bowen, Robert M. and Rajgopal, Shivaram and Venkatachalam, Mohan, Is Warren Buffett's Commentary on Accounting, Governance and Investing Practices Reflected in the Investment Decisions and Subsequent Influence of Berkshire Hathaway? (September 5, 2013). Available at SSRN: https://ssrn.com/abstract=1873585 or http://dx.doi.org/10.2139/ssrn.1873585

Robert M. Bowen (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

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University of Washington - Foster School of Business ( email )

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HOME PAGE: http://foster.uw.edu/faculty-research/directory/robert-bowen/

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
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Mohan Venkatachalam

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7859 (Phone)
919-660-7971 (Fax)

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