Accounting standards, regulatory enforcement, and innovation

Volker Laux and Phillip C. Stocken

Journal of Accounting and Economics, 2018, vol. 65, issue 2, 221-236

Abstract: We examine the effects of accounting standards and regulatory enforcement on entrepreneurial innovation and social welfare. When the entrepreneur issues a financial report that violates the accounting standards, a regulatory agency may detect the violation and bring charges. We find that when regulatory penalties are relatively insensitive to the magnitude of the violation, optimal standards are sufficiently low that they induce full compliance, and increase as the intensity of enforcement increases. In contrast, when regulatory penalties are sensitive to the magnitude of the violation, optimal standards induce non-compliance and decline as the intensity of enforcement increases.

Keywords: Accounting standards; Regulatory enforcement; Innovation (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:65:y:2018:i:2:p:221-236

DOI: 10.1016/j.jacceco.2017.11.001

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