Causal Evidence on the Effects of Enforcement Investigations

50 Pages Posted: 8 Feb 2021 Last revised: 2 Jul 2021

See all articles by Marius Gros

Marius Gros

Goethe University Frankfurt - Department of Accounting and Auditing; Niederrhein University of Applied Sciences

Martin Nienhaus

Goethe University Frankfurt

Christopher Oehler

Goethe University Frankfurt

Date Written: February 1, 2021

Abstract

We examine the firm-level consequences of financial reporting enforcement investigations using proprietary data on risk-based and randomly selected investigations in Germany. We find that risk-based firms take longer to file financial reports, become opaque, and experience abnormal returns of -15.4 percent when under investigation. In contrast, randomly selected firms do not show any abnormal changes. This result is not due to inherent differences in investigation intensity between risk-based and randomly selected investigations. Instead, the negative consequences of risk-based selected investigations are the result of selection. Collectively, we document that investigations per se do not cause significant costs or benefits.

Keywords: costs and benefits of enforcement, financial reporting enforcement, firm-level effects of investigations

JEL Classification: G14, G18, G38, K22, K42, M41

Suggested Citation

Gros, Marius F. and Gros, Marius F. and Nienhaus, Martin and Oehler, Christopher, Causal Evidence on the Effects of Enforcement Investigations (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3777038 or http://dx.doi.org/10.2139/ssrn.3777038

Marius F. Gros

Niederrhein University of Applied Sciences ( email )

Germany

Goethe University Frankfurt - Department of Accounting and Auditing ( email )

Theodor-W.-Adorno-Platz 1
60323 Frankfurt
Germany

Martin Nienhaus (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Christopher Oehler

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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