Webinar: Regulatory Enforcement Spillovers and Common Ownership: Evidence from AAER-Linked Firms

Part of the Lubar Research Seminar Series

Speaker:  Andy Imdieke, University of Notre Dame

This study examines whether regulatory enforcement actions against one firm influence financial reporting quality of other firms that share significant institutional blockholders. Using a sample of Accounting and Auditing Enforcement Releases (AAERs), we find evidence consistent with incremental within industry deterrence spillovers for commonly held peers. That is, we find that firms that share both the industry and a blockholder with the AAER release firm experience fewer restatements and missed material weaknesses following the AAER release compared to firms that share the industry but do not share a blockholder. These findings suggest that enforcement effects extend beyond sanctioned firms to commonly held peers. In additional analysis, we find evidence that commonly held peer firms are more likely to change auditors after the AAER release. Our results highlight a portfolio-level dimension of regulatory enforcement, demonstrating that ownership concentration can amplify enforcement effectiveness which is suggestive of a previously unknown benefit of common institutional ownership.