In this paper I use a principal-agent framework to explore the relation between the hierarchical structure of firms and the accounting information technologies available to them. My analysis is related to that in Melumad, Mookherjee, and Reichelstein [1992] and Ziv [1993]. Melumad, Mookherjee, and Reichelstein model a principal who employs two privately informed agents and chooses either a flat structure where both agents contract and communicate with the principal, or a hierarchical structure in which the principal contracts with only one agent, who subsequently writes a subcontract with a second agent, creating a twolayer organizational form.' Melumad, Mookherjee, and Reichelstein use the revelation principal to prove the general superiority of the flat structure. They add exogenous restrictions on communication (with respect to dimensionality and complexity of the message space) to demonstrate a demand for hierarchy. Ziv [1993], in a moral hazard setting, solves for the optimal number of agents in a one-layer firm, under different exogenously given information structures. In this paper, I take an approach that allows the principal to choose the number of layers in the firm, the

Discretionary disclosures, SFAS No. 106, Accounting standard adoption, Private information

Auditing, Qualified opinion, Market reaction, Litigation exposure

While empirical evidence alludes to the intertemporal nature of corporate voluntary disclosures, most of the existing theory analyzes firms' voluntary disclosure decisions within single‐period settings. Introducing a repeated, multiperiod, disclosure setting, we study the extent to which firms' strategic disclosure behavior in the past affects their prosperity to provide voluntary disclosures in the future. Our analysis demonstrates that by voluntarily disclosing private information firms make an implicit commitment to provide similar disclosures in the future, and therefore are less willing to voluntarily disclose information in the first place. This effect is expected to be of larger magnitude for firms (1) with a long history of absence of voluntary disclosures and an impressive past operating performance, or (2) that operate in a relatively stable and predictable business and information environment, or (3) whose managers have a long time horizon and a high degree of risk aversion.