Lecture Title: Financial reporting regulations in the lab: A case of earnings management

Speaker: Yun Dai, Lingnan College, Sun Yat-sen University

Lecture Time: September 14, 2024, 1:30 PM

Lecture Venue: Room 319, College Building

Abstract of the Lecture:

Using a controlled laboratory experiment, we investigate the causal effects of financial reporting regulation and provide comprehensive evidence along the entire causal path from financial reporting regulation to disclosure outcomes and economic consequences. Our study reveals that the effectiveness of financial reporting regulations is contingent on their binding likelihood. While weak regulations with lower binding probability prove ineffective, strong regulations significantly enhance the informativeness of earnings disclosure, improve pricing efficiency in the secondary market, and protect investors' interests. Additionally, we identify two distinct mechanisms through which financial reporting regulations enhance disclosure quality: constraining earnings management practices and inducing signaling behavior. The greatest welfare improvement occurs when earnings management is most effectively suppressed. Our findings underscore the critical role of financial reporting regulation in elevating market quality and shed light on previously contradictory empirical results surrounding financial reporting regulations.

Speaker Information:

Yun Dai is an Associate Professor of Finance at Lingnan College, Sun Yat-sen University. She also serves as the Head of the Finance Department, Deputy Director of the Corporate Finance Teaching and Research Office, Deputy Director of the Capital Market Research Institute at Sun Yat-sen University, Deputy Director of the Human Resources Management Office at Sun Yat-sen University (on assignment), and the Editor-in-Chief of the Quarterly Journal of Finance.