Proactive Financial Reporting Enforcement and Shareholder Wealth

80 Pages Posted: 27 Sep 2016 Last revised: 6 Oct 2019

See all articles by Hans Bonde Christensen

Hans Bonde Christensen

University of Chicago - Booth School of Business

Lisa Yao Liu

Columbia Business School

Mark G. Maffett

University of Chicago - Booth School of Business

Date Written: October 3, 2019

Abstract

Within the U.K.’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, unintended consequences of regulation

JEL Classification: G14, G18, G38, K22, M41

Suggested Citation

Christensen, Hans Bonde and Liu, Lisa Yao and Maffett, Mark G., Proactive Financial Reporting Enforcement and Shareholder Wealth (October 3, 2019). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2843884 or http://dx.doi.org/10.2139/ssrn.2843884

Hans Bonde Christensen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Lisa Yao Liu

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Mark G. Maffett

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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