The market effects of the German two-tier enforcement of financial reporting

Renate Hecker and Andreas Wild

No 334, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: This study contributes to the literature by analyzing the potential market penalties due to financial reporting violations detected by the German enforcement regime. Event study results provide evidence that official error announcements lead to significant negative (cumulative) abnormal returns. Investigating the variation between the cumulative abnormal returns, the cross-sectional analysis indicates that companies are able to dilute the (negative) capital market reaction by releasing other (positive) information simultaneously. The negative stock market reaction is less pronounced for profit-decreasing errors. The cumulative abnormal returns are more negative for companies that have been listed for a longer period of time.

Keywords: German two-tier enforcement regime; quality of financial accounting; erroneous financial reports; Federal Financial Supervisory Authority (BaFin); Financial Reporting Review Panel (FREP) (search for similar items in EconPapers)
JEL-codes: G14 M41 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-acc
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:334

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