Proactive Financial Reporting Enforcement and Shareholder Wealth

83 Pages Posted: 27 Sep 2016 Last revised: 6 Mar 2019

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: March 4, 2019

Abstract

We examine the effect of increased proactive-financial-reporting-enforcement (PFRE) on shareholder wealth. 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 in settings where it is most likely that, prior to PFRE, private oversight ensures firms are already at their equity-value-maximizing level of transparency. Consistent with proprietary costs of increased transparency partly explaining the effect, firms with abnormally high profits experience the largest reductions in equity value and, in industries selected for increased regulatory scrutiny, profitability mean reverts faster after PFRE.

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 (March 4, 2019). 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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