A positive theory of flexibility in accounting standards

Ronald A. Dye, Sri S. Sridhar*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

38 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)312-333
Number of pages22
JournalJournal of Accounting and Economics
Issue number2-3
StatePublished - Dec 2008


  • Accounting standards
  • Investment efficiencies
  • Network externalities
  • Reporting biases
  • Reporting discretion

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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