A Model of Aggregate Reporting Quality
Journal of Financial Reporting, 2016
46 Pages Posted: 29 Jul 2014 Last revised: 3 Jul 2018
Date Written: September 27, 2016
We characterize ﬁrms’ aggregate reporting quality in an economy where a rational capital market as well as a regulator discipline ﬁrms’ reporting choices. When the regulator is resource constrained, multiple aggregate reporting choices are possible in equilibrium. This multiplicity is driven not just by the regulatory constraint, but also by how this constraint interacts with managerial incentives and the level of reporting discretion available to ﬁrms. We discuss the empirical implications of these findings.
Keywords: compensation, regulation, crises
JEL Classification: G18
Suggested Citation: Suggested Citation