TY - JOUR
T1 - A positive theory of flexibility in accounting standards
AU - Dye, Ronald A.
AU - Sridhar, Sri S.
N1 - Funding Information:
We wish to thank seminar participants at the University of Chicago/Minnesota Accounting Theory Conference, the Carnegie Mellon Bosch Accounting Conference, and the Danish Center for Accounting and Finance's Second Interdisciplinary Accounting Conference, along with the referee Robert Bushman and the editor S.P. Kothari, for helpful comments on previous drafts of the manuscript, and the Accounting Research Center at Northwestern University for financial support.
PY - 2008/12
Y1 - 2008/12
N2 - 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.
AB - 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.
KW - Accounting standards
KW - Investment efficiencies
KW - Network externalities
KW - Reporting biases
KW - Reporting discretion
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U2 - 10.1016/j.jacceco.2008.09.002
DO - 10.1016/j.jacceco.2008.09.002
M3 - Article
AN - SCOPUS:56249103086
SN - 0165-4101
VL - 46
SP - 312
EP - 333
JO - Journal of Accounting and Economics
JF - Journal of Accounting and Economics
IS - 2-3
ER -