Corporate Scandals and Regulation

HAIL, LUZI; TAHOUN, AHMED; WANG, CLARE

doi:10.1111/1475-679x.12201

Cited by 112Auditing, Earnings Management, GovernanceRegulation and Compliance StudiesCorporate Finance and Governance

Corporate Scandals and Regulation

HAIL, LUZI, TAHOUN, AHMED, WANG, CLARE·2018·Journal of Accounting Research

DOI 10.1111/1475-679x.12201

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Abstract

Are regulatory interventions delayed reactions to market failures or can regulators proactively pre‐empt corporate misbehavior? From a public interest view, we would expect “effective” regulation to ex ante mitigate agency conflicts between corporate insiders and outsiders, and prevent corporate misbehavior from occurring or quickly rectify transgressions. However, regulators are also self‐interested and may be captured, uninformed, or ideological, and become less effective as a result. In this registered report, we develop a historical time series of corporate (accounting) scandals and (accounting) regulations for a panel of 26 countries from 1800 to 2015. An analysis of the lead‐lag relations at both the global and individual country level yields the following insights: (1) Corporate scandals are an antecedent to regulation over long stretches of time, suggesting that regulators are typically less flexible and informed than firms. (2) Regulation is positively related to the incidence of future scandals, suggesting that regulators are not fully effective, that explicit rules are required to identify scandalous corporate actions, or that new regulations have unintended consequences. (3) There exist systematic differences in these lead‐lag relations across countries and over time, suggesting that the effectiveness of regulation is shaped by fundamental country characteristics like market development and legal tradition.

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Financial reporting regulation often reacts to corporate scandals or financial crises, as they change what is deemed material information.
“Finally, financial reporting regulation often reacts to corporate scandals or financial crises, as they change what is deemed material information (Hail et al. 2018).”
From Mandatory CSR and sustainability reporting: economic analysis and literature review (2021) · cites this paper as Hail et al. 2018

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Authors: HAIL, L., TAHOUN, A., & WANG, C.
Affiliations: University of Pennsylvania (US)
London Business School (GB)
University of Iowa (US)
ORCID: HAIL, LUZI
WANG, CLARE
Venue: Journal of Accounting Research
Publisher: Wiley
Published: 2018-03-30
Volume: 56
Issue: 2
Pages: 617-671
ISSN: 0021-8456 (ISSN-L)
1475-679X
DOI: 10.1111/1475-679x.12201
OpenAlex: W2795323841
Cited by: 111
References: 74
Citations by year: 2026: 14 · 2025: 15 · 2024: 17 · 2023: 22 · 2022: 9 · 2021: 8 · 2020: 5 · 2019: 11 · 2018: 5 · 2017: 3 · 2015: 2
FWCI: 21.33
Type: journal article
Language: en
Open access: closed
Licence: onlinelibrary.wiley.com/termsAndConditions#vor (vor)
Locations: Journal of Accounting Research (publishedVersion)
Topics: Social Sciences › Business, Management and Accounting › Accounting › Auditing, Earnings Management, Governance
Social Sciences › Business, Management and Accounting › Strategy and Management › Regulation and Compliance Studies
Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
Keywords: corporate scandals, accounting regulation, regulatory effectiveness, principal-agent problem, regulatory capture, lead-lag relationship, market failure, regulatory delays, market development, legal tradition, cross-national comparison

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