Financial Reporting System Choice and Disclosure Management

Posted: 26 Apr 2004

See all articles by Phillip C. Stocken

Phillip C. Stocken

Dartmouth College - Tuck School of Business

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Abstract

We examine the efficiency implications of a manager's financial reporting system choice and disclosure management. When a manager has some private information that is not captured by a firm's financial reporting system and may manipulate the financial report at some cost, we show that the manager may not choose the most precise financial reporting system. We examine how reporting system choice varies with the precision of the manager's private information captured by the reporting system, precision of information that is not captured by the reporting system, and the manager's cost of manipulating the report. We consider the effect of reporting discretion on the efficiency with which investors allocate resources.

Keywords: Financial reporting system choice, reporting discretion, non-financial measures, resource allocation efficiency

JEL Classification: M41, M45, D82

Suggested Citation

Stocken, Phillip C. and Verrecchia, Robert E., Financial Reporting System Choice and Disclosure Management. Accounting Review, October 2004. Available at SSRN: https://ssrn.com/abstract=535563

Phillip C. Stocken (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States
603-646-2843 (Phone)

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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