This paper studies two disclosure regimes when a firm with superior private information must rely on a strategic certifier to disclose credibly its prospects. In the ex ante (ex post) disclosure regime, the firm must decide on whether to hire the certifier before (after) observing the certifier׳s noisy assessment. Endogenously determined certification fees can actually cause the disclosure probability to decrease in disclosure precision. In the ex ante regime, favorable disclosures are more informative than unfavorable disclosures because of additional positive signaling effect. In the ex post (ex ante) regime, the certifier has incentives to increase (decrease) the disclosure precision.

We develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion, or flexibility, they provide firms. We evaluate expected value-maximizing firms’ preferences between two standards regimes, rigid and flexible, as the number of firms subject to each standard varies, as the organization of the securities market varies, and as the mapping from the underlying economics of the firms’ transactions to the accounting reports produced under the two standards vary. We also compare firms’ preferences between the two regimes to the preferences of profit-maximizing traders in the firms’ securities.

This paper shows through increasing disclosure requirements may induce firms to reduce their value-relevant disclosures. In the absence of segment reporting requirements, an incumbent firm may voluntarily disclose value-relevant information because it can use other, value-irrelevant, information to jam proprietary disclosures. However, when required to disclose segment data, the incumbent may aggregate proprietary information with other value-relevant information to deter entry by a rival. Hence, the firm does not disclose value-relevant information it would have revealed voluntarily in the absence of segment disclosure requirements. In such situations, requiring more disaggregate disclosures can actually decrease price efficiency.