Proactive financial reporting enforcement and shareholder wealth

Christensen, Hans B.; Liu, Lisa Yao

doi:10.1016/j.jacceco.2019.101267

Cited by 32 publications

(21 citation statements)

References 84 publications

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“…Under this view, primarily the direct costs of enforcement limit its desirability. Recent papers by Christensen, Liu, and Maffett [] and Florou, Morricone, and Pope [] find support for high costs of enforcement to firms, exploiting a change of the enforcement by the Financial Reporting Review Panel in the United Kingdom. Christensen, Liu, and Maffett [] find that stronger enforcement reduces shareholder wealth.…”

Section: Introductionmentioning

confidence: 99%

“…Recent papers by Christensen, Liu, and Maffett [] and Florou, Morricone, and Pope [] find support for high costs of enforcement to firms, exploiting a change of the enforcement by the Financial Reporting Review Panel in the United Kingdom. Christensen, Liu, and Maffett [] find that stronger enforcement reduces shareholder wealth. Florou, Morricone, and Pope [] document that stronger enforcement increases audit effort, risk, and fees, particularly for firms listed on the Alternative Investment Market.…”

Section: Introductionmentioning

confidence: 99%

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Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

Ewert

Wagenhofer

2019

J of Accounting Research

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A widely held assumption in policy making and empirical research is that increasing the strength of public enforcement improves financial reporting quality and audit quality. This paper provides a more nuanced view. In a model with a manager who can manage earnings, a strategic auditor, and an enforcement institution, we show that enforcement and auditing are complements in a weak enforcement regime but can be substitutes in a strong regime. Although stronger enforcement always mitigates earnings management, the effects of different instruments of strengthening enforcement are ambiguous. We show that they can improve or impair financial reporting quality and audit quality, depending on production risk, accounting system characteristics, and the scope of auditing relative to enforcement.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

Ewert

Wagenhofer

2019

J of Accounting Research

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“…Furthermore, it is impossible to eliminate regulations that are impossible to stop, as they exist to improve the financial reporting quality [28]. Law enforcement is important because it enhances and guarantees financial reporting quality [29]. A country's legal and regulatory system significantly affects financial reporting quality but is yet to be explored in accounting literature.…”

Section: Hypothesis 1: Ics Positively Affects Frqmentioning

confidence: 99%

“…Regulations are impossible to eliminate, as they exist to improve the quality of financial reporting [28]. Law enforcement helps to increase and guarantee financial reporting quality [29]. One of the important factors that affect financial reporting quality that is yet to be explored in accounting literature is the country's legal and regulatory system.…”

Section: Hypothesis 3: Cor Positively Affects Frqmentioning

confidence: 99%

The Zeitgeist of "Financial Reporting Quality" Predictors: An Empirical Study among Local Governments (Districts) in Indonesia

Hariani¹,

Fakhrorazi²

2022

ujaf

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The research investigated the relationship among FRQ, ICS, RPM, and COR as moderating variables. The research recommends that local governments should improve in the field of financial management and implement an effective internal control system. Aligning the research problem and objectives, this research adopted the agency theory for local government. This theory includes information asymmetry, where the agent has more information and understands more about the actual financial position than the principal. Modern democracies are based on a series of principal-agent relationships, which may lead to problems in the public sector. In this research, 257 qualified questionnaires were collected from local governments in Indonesia, using self-administered surveys. Furthermore, Partial Least Square-Structural Equation Modelling (PLS-SEM) technique was used for data analysis. The results showed that ICS, COR, and RPM have a positive relationship with FRQ, while the hypothesis that COR strengthens the effect of ICS on FRQ was rejected. High COR does not significantly improve the FRQ without being supported by a good ICS. With a high or low COR, the ICS will continue to be carried out properly by leaders and superiors. Therefore, a good COR does not significantly moderate the effect of the ICS on the FRQ. The quality of financial reports is the result of accounting activities that can provide financial information which can be understood by users and be used for decision-making in the future.

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“…Third, we contribute to the literature that finds that regulation is not always necessarily beneficial (e.g., Iliev et al 2014;Christensen et al 2020). While we find that comparability for non-US-listed companies audited by PCAOB-inspected auditors increases compared to US and other non-US-listed companies audited by PCAOB-inspected auditors, we find that comparability within a country decreases compared to non-US-listed companies not audited by PCAOBinspected auditors.…”

mentioning

confidence: 99%

Do PCAOB Inspections of Foreign Auditors Affect Global Financial Reporting Comparability?*

Ege

Kim

De-chun

2021

Contemporary Accting Res

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This study investigates whether PCAOB inspections of foreign auditors affect global financial reporting comparability. Foreign auditors may adjust audit methodologies to address PCAOB inspection findings, which could affect financial reporting of local clients. Exploiting both within-and cross-country variation in PCAOB inspections, we predict and find that non-USlisted foreign companies' financial reporting becomes more comparable to their US and non-US industry peers after their auditors undergo an initial inspection. However, there is a decrease in comparability compared to local peers whose auditors have not been inspected. Subsample tests suggest that the improvement in comparability is driven by (i) auditors that satisfactorily address deficiencies and (ii) auditors that do not publicly push back against deficiencies. The effects are dampened after local audit regulators begin inspection programs. Overall, our evidence suggests that the PCAOB international inspection program affects audit methodologies of inspected auditors in a consistent way, improving comparability across jurisdictions. The improved comparability implies that the PCAOB international inspection program may unintentionally help meet accounting regulators' goals of cross-country financial reporting convergence, which potentially promotes efficient cross-country capital allocation.

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Proactive financial reporting enforcement and shareholder wealth

Cited by 32 publications

References 84 publications

Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality

The Zeitgeist of "Financial Reporting Quality" Predictors: An Empirical Study among Local Governments (Districts) in Indonesia

Do PCAOB Inspections of Foreign Auditors Affect Global Financial Reporting Comparability?*

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