Stability and Regime Change: The Evolution of Accounting Standards

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