Stability and Regime Change: The Evolution of Accounting Standards

The Accounting Review

36 Pages Posted: 31 Oct 2017 Last revised: 4 May 2023

See all articles by Hui Chen

Hui Chen

University of Zurich

Li Yang

Columbia Business School

Date Written: September 1, 2019


We examine the evolution of accounting regulation by linking disclosure policies
and investments in a dynamic voting model. The disclosure policies are the outcome
of voting by entrepreneurs, whose preferences are influenced by their investments. The investments are in turn endogenously determined by current and future disclosure policies. Absent external influences, accounting regimes are stable. A disclosure regime of high (low) quality and a strong (weak) economy coexist and reinforce each other. However, regulatory interventions can result in regime changes by changing the entrepreneurs’
expectations, even without direct enforcement. Unexpected shocks could also result in regime changes by impacting economic conditions and hence voter composition. Our analysis provides a framework to study the interaction between accounting regulation and firms’ economic decisions.

Keywords: accounting standards, political economy, dynamic voting

JEL Classification: D72, K22, M41, M48

Suggested Citation

Chen, Hui and Yang, Li, Stability and Regime Change: The Evolution of Accounting Standards (September 1, 2019). The Accounting Review, Available at SSRN: or

Hui Chen (Contact Author)

University of Zurich ( email )

Plattenstrasse 14
Zurich, CH-8032

Li Yang

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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