Uniform vs. Discretionary Regimes in Reporting Information with Unverifiable Precision and a Coordination Role

60 Pages Posted: 11 Jan 2015 Last revised: 12 May 2016

See all articles by Qi Chen

Qi Chen

Duke University - Fuqua School of Business

Tracy Lewis

Duke University

Katherine Schipper

Duke University - Fuqua School of Business

Yun Zhang

George Washington University

Multiple version iconThere are 2 versions of this paper

Date Written: May 11, 2016

Abstract

We examine uniform and discretionary regimes for reporting information about firm performance from the perspective of a standard setter, in a setting where the precision of reported information is difficult to verify and the reported information can help coordinate decisions by users of the information. The standard setter's task is to choose a reporting regime to maximize the expected decision value of reported information for all users at all firms. The uniform regime requires all firms to report using the same set of reporting methods regardless of the precision of their information, and the discretionary regime allows firms to freely condition their sets of reporting methods on the precision of their information. We show that when unverifiable information precision varies across firms and users' decisions based on reported information have strong strategic complementarities, a uniform regime can have a beneficial social effect as compared to a discretionary reporting regime. Our analysis generates both normative and positive implications for evaluating the necessity and effectiveness of reporting under standards.

Keywords: Accounting Standards, Strategic Complementarity, Coordination, Externality

JEL Classification: D82, M41

Suggested Citation

Chen, Qi and Lewis, Tracy and Schipper, Katherine and Zhang, Yun, Uniform vs. Discretionary Regimes in Reporting Information with Unverifiable Precision and a Coordination Role (May 11, 2016). Available at SSRN: https://ssrn.com/abstract=2547543 or http://dx.doi.org/10.2139/ssrn.2547543

Qi Chen

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
(919) 660-7753 (Phone)

Tracy Lewis

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

Katherine Schipper

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Yun Zhang (Contact Author)

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

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