Proactive Financial Reporting Enforcement and Shareholder Wealth

59 Pages Posted: 27 Sep 2016 Last revised: 15 Dec 2017

See all articles by Hans Bonde Christensen

Hans Bonde Christensen

University of Chicago - Booth School of Business

Lisa Yao Liu

University of Chicago - Booth School of Business

Mark G. Maffett

University of Chicago - Booth School of Business

Date Written: December 14, 2017

Abstract

We examine the effect of increased proactive-financial-reporting-enforcement (PFRE) intensity on shareholder wealth. In a setting where specific industries are periodically targeted for greater regulatory scrutiny, we find that PFRE is associated with increased disclosure, greater resources expended on regulatory compliance, and higher stock-market liquidity. Yet, the market reaction to the announcement of the targeted industries is negative, suggesting that, despite an improvement in transparency, increasing PFRE intensity could have a net-negative effect on shareholder wealth. Supporting this interpretation, firms with stronger preexisting private oversight—where additional public enforcement is presumably least beneficial—experience the largest reductions 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 (December 14, 2017). 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

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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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