A positive theory of flexibility in accounting standards
AbstractWe 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Accounting and Economics.
Volume (Year): 46 (2008)
Issue (Month): 2-3 (December)
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Web page: http://www.elsevier.com/locate/jae
Accounting standards Network externalities Reporting biases Reporting discretion Investment efficiencies;
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