Information Externalities and Accounting Standardization
41 Pages Posted: 17 Mar 2025
Date Written: December 12, 2024
Abstract
Firms' information disclosure is a public good: When firm fundamentals are correlated, one firm's information can benefit others in making better decisions. Without regulation, firms fail to internalize the benefits of their disclosure and underproduce information. To address this, firms may resort to integration (become devisions of a combined firm and let the headquarters set the level of information production) or accounting standardization (remain independent and let the regulator set a uniform information production level). We find that integration's flexibility enhances investment efficiency ex post, but also leads divisions to overinvest ex ante. Accounting standardization can curb free-riding incentives and improve investment efficiency. Overall, our results suggest accounting standardization addresses information externalities and affects the optimal boundaries of the firm.
Suggested Citation: Suggested Citation
Huang, Zeqiong and Ray, Korok and Zhang, Yun, Information Externalities and Accounting Standardization (December 12, 2024). Available at SSRN: https://ssrn.com/abstract=5104146 or http://dx.doi.org/10.2139/ssrn.5104146
Do you have a job opening that you would like to promote on SSRN?
Feedback
Feedback to SSRN