A positive theory of flexibility in accounting standards

Ronald A. Dye and Sri S. Sridhar

Journal of Accounting and Economics, 2008, vol. 46, issue 2-3, pages 312-333

Abstract: We develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion, or flexibility, they provide firms. We evaluate expected value-maximizing firms' preferences between two standards regimes, rigid and flexible, as the number of firms subject to each standard varies, as the organization of the securities market varies, and as the mapping from the underlying economics of the firms' transactions to the accounting reports produced under the two standards vary. We also compare firms' preferences between the two regimes to the preferences of profit-maximizing traders in the firms' securities.

Keywords: Accounting; standards; Network; externalities; Reporting; biases; Reporting; discretion; Investment; efficiencies (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jaecon:v:46:y:2008:i:2-3:p:312-333

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Journal of Accounting and Economics is edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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