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Accounting standards, regulatory enforcement, and innovation

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  • Laux, Volker
  • Stocken, Phillip C.

Abstract

We examine the effects of accounting standards and regulatory enforcement on entrepreneurial innovation and social welfare. When the entrepreneur issues a financial report that violates the accounting standards, a regulatory agency may detect the violation and bring charges. We find that when regulatory penalties are relatively insensitive to the magnitude of the violation, optimal standards are sufficiently low that they induce full compliance, and increase as the intensity of enforcement increases. In contrast, when regulatory penalties are sensitive to the magnitude of the violation, optimal standards induce non-compliance and decline as the intensity of enforcement increases.

Suggested Citation

  • Laux, Volker & Stocken, Phillip C., 2018. "Accounting standards, regulatory enforcement, and innovation," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 221-236.
    • Handle: RePEc:eee:jaecon:v:65:y:2018:i:2:p:221-236
    DOI: 10.1016/j.jacceco.2017.11.001
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    References listed on IDEAS

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    Cited by:

    1. Christopher Bleibtreu & Roland Königsgruber & Thomas Lanzi, 2022. "Financial reporting and corporate political connections: An analytical model of interactions," Post-Print hal-03957978, HAL.
    2. Giau Bui, Dien & Chen, Yehning & Lin, Chih-Yung & Lin, Tse-Chun, 2021. "Risk-taking of bank CEOs and corporate innovation," Journal of International Money and Finance, Elsevier, vol. 115(C).
    3. Chen, Xihui Haviour & Tee, Kienpin & Chang, Victor, 2022. "Accelerating Innovation Efficiency through Agile Leadership: The CEO Network Effects in China," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    4. Gao, Pingyang & Jiang, Xu, 2020. "The economic consequences of discrete recognition and continuous measurement," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    5. Kristian D. Allee & Brian J. Bushee & Tyler J. Kleppe & Andrew T. Pierce, 2022. "Did the Siebel Systems Case Limit the SEC's Ability to Enforce Regulation Fair Disclosure?," Journal of Accounting Research, Wiley Blackwell, vol. 60(4), pages 1235-1291, September.
    6. Biehl, Henrike & Bleibtreu, Christopher & Stefani, Ulrike, 2024. "The real effects of financial reporting: Evidence and suggestions for future research," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    7. Schantl, Stefan F. & Wagenhofer, Alfred, 2020. "Deterrence of financial misreporting when public and private enforcement strategically interact," Journal of Accounting and Economics, Elsevier, vol. 70(1).
    8. Ralf Ewert & Alfred Wagenhofer, 2019. "Effects of Increasing Enforcement on Financial Reporting Quality and Audit Quality," Journal of Accounting Research, Wiley Blackwell, vol. 57(1), pages 121-168, March.

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