Proactive financial reporting enforcement and shareholder wealth

Hans B. Christensen, Lisa Liu () and Mark Maffett

Journal of Accounting and Economics, 2020, vol. 69, issue 2

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.

Keywords: Financial reporting enforcement; Costs and benefits of enforcement; Proprietary costs; Managerial short-termism; Unintended consequences of regulation (search for similar items in EconPapers)
JEL-codes: G14 G18 G38 K22 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:69:y:2020:i:2:s016541011930062x

DOI: 10.1016/j.jacceco.2019.101267

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