Capital Allocation Effects of Financial Reporting Regulation

R. Koenigsgruber

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper analyses the effects of stricter financial reporting enforcement on capital allocation and reporting quality in a game-theoretic model and derives conclusions about optimal enforcement strictness. Analysis of the model shows that reporting quality strictly increases with tighter enforcement. However, the effect of stricter enforcement on capital allocation is non-monotonic. Intermediate enforcement strictness results in overdeterrence of viable projects even without costs of compliance. This effect can be alleviated by means of either less or more stringent enforcement. © 2012 Copyright European Accounting Association.
Original languageEnglish
Pages (from-to)283-296
JournalEuropean Accounting Review
Volume21
Issue number2
DOIs
Publication statusPublished - 2012

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