Lobbying and Uniform Disclosure Regulation

Abstract

This study examines the costs and benefits of uniform accounting regulation in the presence of heterogeneous firms that can lobby the regulator. A commitment to uniform regulation reduces economic distortions caused by lobbying by creating a free-rider problem between lobbying firms at the cost of forcing the same treatment on heterogeneous firms. Resolving this tradeoff, an institutional commitment to uniformity is socially desirable when firms are sufficiently homogeneous or the costs of lobbying to society are large. We show that the regulatory intensity for a given firm can be increasing or decreasing in the degree of uniformity, even though uniformity always reduces lobbying. Our analysis sheds light on the determinants of standard-setting institutions and their effects on corporate governance and lobbying efforts.