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Proactive financial reporting enforcement and shareholder wealth

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  • Christensen, Hans B.
  • Liu, Lisa Yao
  • Maffett, Mark

Abstract

Within the UK's proactive financial-reporting enforcement regime, we examine the effect of increased regulatory scrutiny on equity values. We find that a fourfold increase in the likelihood of regulator-initiated reviews of financial reports reduces equity values by 1.3% on average. Reductions in equity values are largest for firms with strong private oversight that likely ensures that they are closer to their equity-value-maximizing level of transparency. Additional evidence suggests that competition increases and that managers' investment horizons decrease in industries selected for increased regulatory scrutiny, consistent with direct compliance costs not fully explaining the reduction in equity values.

Suggested Citation

  • Christensen, Hans B. & Liu, Lisa Yao & Maffett, Mark, 2020. "Proactive financial reporting enforcement and shareholder wealth," Journal of Accounting and Economics, Elsevier, vol. 69(2).
    • Handle: RePEc:eee:jaecon:v:69:y:2020:i:2:s016541011930062x
    DOI: 10.1016/j.jacceco.2019.101267
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    More about this item

    Keywords

    Financial reporting enforcement; Costs and benefits of enforcement; Proprietary costs; Managerial short-termism; Unintended consequences of regulation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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