Financial Reporting Regulation in the Laboratory: A Case on Earnings Management

• 成果类型: Article; Early Access
• 署名作者: Dai, Yun; Bao, Te; Zhu, Jiahua
• 署名单位: Sun Yat Sen University; Nanyang Technological University; Inner Mongolia University; University of London; King's College London
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.03361
• 发表日期: 2025
• 关键词: financial reporting regulation; earnings management; Pricing efficiency; welfare analysis

摘要

Using a controlled laboratory experiment, we examine how financial reporting regulations-limits on earnings management and auditing-affect disclosure quality and market efficiency. Our findings indicate that a tight limit and the possibility of an audit enhance the informativeness of earnings disclosures, leading to improved pricing efficiency while a weak limit deteriorates disclosure quality and pricing efficiency. Financial reporting regulations enhance disclosure quality via both constraining earnings management practices and inducing signaling behavior. Auditing more effectively boosts social welfare by suppressing manipulation, whereas limits trigger overinvestment in costly signal. Our results also shed light on previously contradictory empirical findings regarding financial reporting regulations.