Does Industry Employment of Active Regulators Weaken Oversight?

• 成果类型: Article
• 署名作者: Heese, Jonas
• 署名单位: Harvard University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4326
• 发表日期: 2022
• 页码: 9198-9218
• 关键词: conflict-of-interest policies; DIRECTORSHIPS; enforcement actions; industry employment; self-regulatory organizations

摘要

I study whether industry employment of active regulators weakens oversight. To examine this question, I exploit that the Financial Reporting Enforcement Panel (FREP), the German capital-market regulator responsible for enforcing public firms' compliance with accounting standards, allows its senior regulators to serve on boards of public firms during their FREP tenure. I find that firms are less likely to face enforcement actions after they appoint active regulators to their board. After such an appointment, firms are more likely to receive a qualified audit opinion, more likely to have an above-normal risk of accounting manipulation, as measured by an F-score greater than one, and exhibit higher income-increasing abnormal accruals. These findings suggest that directorships of active regulators can result in conflicts of interest that weaken oversight.