This study investigates recent reforms in financial reporting enforcement in Germany. The objective of these reforms was to promote a consistent and faithful application of accounting standards. Using a difference-in-differences approach, we find some evidence of a decrease in earnings management, an increase in stock liquidity, and, to a limited extent, an increase in market valuation for companies that fall under the new enforcement regime. Our results also provide some support for the notion that companies characterized by an overall low level of enforcement through other internal and external mechanisms are particularly affected by these reforms. The results are largely robust in several sensitivity analyses, but the results must be interpreted with caution because we cannot completely rule out the possibility of other explanations.
This paper examines how mandatory quarterly reporting affects managers' business decisions in terms of real activities manipulations. For our analyses, we use the setting of the European Union, where the reporting frequency was increased with the introduction of a mandate to issue Interim Management Statements (IMSs) on a quarterly basis. Controlling for accrual-based earnings management, we find an increase in real activities manipulations for firms mandated to switch from semiannual to quarterly IMS reporting, relative to matched control firms. This finding is in line with the notion of higher managerial short-termism resulting from increased reporting frequency requirements. Further, we provide evidence that reporting frequency-induced real activities manipulations are more pronounced if the price pressure from investors is high and if the informativeness of IMS disclosure is low. We also document that reporting frequency-induced real activities manipulations are followed by a short-term increase and then a decrease in firms' operating performance.
Data Availability: Data are available from the commercial databases and public sources identified in the paper.
This article investigates the role of sorting portfolios in evaluating asset-pricing models. With the rising number of empirical studies about asset-pricing models, the comparability of these effects suffers from (1) different aggregational levels of firm returns, (2) different models, i.e. Capital Asset-Pricing Model (CAPM) versus the Fama and French model and (3) time-varying factor risk loadings. We find that β-sorting improves the performance of the CAPM, while portfolios built according to size and book-to-market equity (BE/ME) enhance the Fama and French model. However, the success of the three-factor model is not restricted to its factor-mimicking portfolios. For all analysed types of portfolios the Fama and French three-factor model turns out to be superior to the CAPM, both statistically and economically. Applying a quantile regression-based analysis, we also find support that the 'independent and identically distributed' (i.i.d.)-assumption empirically holds in these asset-pricing models, but the role of the unspecified part (α) changes when looking at the tails of the return distribution. The validity of our empirical results is supported by careful specification tests.sorting portfolios, asset pricing, Fama-French model, CAPM,
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