A Model of Aggregate Reporting Quality

We characterize firms' aggregate reporting quality in an economy where a rational capital market, as well as a regulator, discipline firms' reporting choices. When the regulator is resource-constrained, multiple aggregate reporting choices are possible in equilibrium. This multiplicity is driven not just by the regulatory constraint, but also by how this constraint interacts with managerial incentives and the level of reporting discretion available to firms. The model offers concrete explanations for empirical findings linking aggregate reporting quality to underlying institutions, and suggests new empirical approaches that can exploit multiplicity to create more powerful tests.