A positive theory of flexibility in accounting standards

A positive theory of flexibility in accounting standards 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

A positive theory of flexibility in accounting standards

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Publisher
Elsevier
Copyright
Copyright © 2008 Elsevier B.V.
ISSN
0165-4101
DOI
10.1016/j.jacceco.2008.09.002
Publisher site
See Article on Publisher Site

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.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 2008

References

  • Should intangibles be measured: What are the economic trade-offs?
    Kanodia, C.; Sapra, H.; Venugopalan, R.

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