Publication on Enforcement and Disclosure

Unveiling the Impact of Enforcement on Disclosure: Insights by Benedikt Franke and Dirk Simons (University of Mannheim)

Our study delves into the vital role of enforcing disclosure rules for their efficacy. Using a sophisticated theoretical model, we analyze how enforcement influences both mandatory and voluntary disclosure behaviors across various regulatory landscapes.

Our findings reveal that heightened enforcement leads to increased compliance among companies—an intuitive outcome. However, this also brings a trade-off, as it diminishes companies' willingness to voluntarily share information, consequently reducing overall transparency. Despite this, stronger enforcement has positive effects on capital markets overall, like reducing mispricing in the market. 

Delving even deeper, we explore the disclosure preferences of companies. Our model shows that a majority of firms support a specific disclosure rule and that companies lean towards more mandatory disclosure when enforcement is stronger. This underscores the significance of striking the right balance in regulatory frameworks. #RegulatoryInsights #TransparencyMatters

The paper is published by the Journal of Accounting and Public Policy and available for download (open access) at https://doi.org/10.1016/j.jaccpubpol.2023.107131.