Evolution of Accounting Regulation

With the worldwide adoption of International Financial Reporting Standards (IFRS) for publicly traded companies, accounting regulation is experiencing one of the most significant changes in its history. A large body of empirical research has been carried out to examine the consequences of IFRS adoption since then. Yet, on the theory side, little is known beyond an intuitive level about the underlying cause and the driving mechanism of this regulatory change. In fact, there is little research that studies accounting from a politico-economic perspective. In this project, which is also my doctoral dissertation, I ask the question why the accounting policies come into existence in the first place and how they develop into the current framework. It could speak to the theoretical foundations of IFRS adoption and conditions under which the introduction of IFRS could lead to material improvement in disclosure quality. It also has policy implications for standard setting bodies such as IASB and FASB. As a first step, my co-author and I analyze the long-run evolution of accounting regulation through a dynamic voting model with overlapping generations. By examining theoretically the stability of the accounting regimes and conditions for regime change, we demonstrate that accounting disclosure regimes are intrinsically persistent with self-regenerating constituencies. While the high-disclosure regime is efficient and robust to deviation, the low-disclosure regime is inefficient and can be induced into a transition even with the support of unsuccessful entrepreneurs . Based on this framework, I plan to explore two more interesting settings to further explain: 1. differences in disclosure quality in a multi-economy setting; 2. The role of enforcement in accounting standard setting and the corresponding consequences. Moreover, I plan to bring the theory to data, calibrate the model and empirically test the results. Following is a brief projected timeline:Feb. 1st - May 1st revise and improve Chen and Yang (2017)May 1st - Aug. 1st read literature and learn about relevant analytical and numerical techniquesAug. 1st - Nov. 1st (funding period)develop model with a multi-economy setting Nov. 1st - Feb. 1st (funding period)develop model with enforcement Feb.1st - June 31st calibrate and test the models