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Political Pressures and the Evolution of Disclosure Regulation, Review of Accounting Studies


This paper develops a theory that describes the formation and evolution of accounting classifications, specifically as they relate to the reporting of favorable vs. unfavorable events. Informed owners may exert political pressures to pass regulations that would increase market prices, possibly working against the standard-setters mission and reducing investor surplus. In equilibrium, changes in the regulation depend on the status-quo, the standard-setters political influence and the cost-benefit of disclosure. If the standard-setter is sufficiently influent or disclosure costs are low, the standard features a classification that may become finer over time and converges to the level of disclosure preferred by standard-setters. Otherwise, political pressures may create endogenous cycles in the implemented regulation. During such cycles, periods of slow or moderate increases in mandatory disclosure are punctuated by short bursts of deregulation. Elaborating on some of the political constraints faced by standard-setters, the analysis provides a simple framework capturing why and when accounting regulations come to be.




Jeremy Bertomeu, Robert Magee

Date Published



Bertomeu, Jeremy, and Robert Magee. 2015. Political Pressures and the Evolution of Disclosure Regulation. Review of Accounting Studies.(2): 775-802.


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