An investigation into the capital market reaction on accounting standards enforcement

  • Compliance with prevailing accounting standards is induced if the expected disadvantage due to sanctions imposed if non-compliance is detected outweighs the advantage of noncompliant accounting choices. The expected disadvantage materialises the threat potential of sanctions imposed by an enforcement agency. The capital market mechanism unfolds an important threat potential if companies expect an adverse share price reaction suite to enforcement actions. Enforcement agencies in turn can make use of this capital market related sanction by releasing information on defections to the market after the settlement of an investigation. The present contribution analyses the capital market reaction on accounting standards enforcement activities of the British Financial Reporting Review Panel (FRRP). After a brief introduction into the legal basis and working procedure of the Panel, the analysis of its activities will serve a dual purpose: firstly, the significance of capital market related sanctions for the overall enforcement regime will be elaborated upon. Secondly, the extent to which capital market related sanctions accomplish their function within the overall enforcement regime will be assessed empirically. The results of the empirical analysis suggest that the capital market related sanctioning by the FRRP may not unfold a sufficient threat potential which is a prerequisite for compliance enhancement.

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Author:Hanne Böckem
Parent Title (German):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 17
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (17)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:1998
Year of first Publication:1998
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/08/30
Tag:Accounting; Capital Market; Enforcement; Financial Reporting Review Panel (FRRP); UK-Environment
Page Number:26
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht