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

Speaker: Dai Yun, Sun Yat-sen University

Time: September 14, 2024 ,13:30

Venue: EMS 319

Abstract: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.

Guest Bio: Dai Yun, an associate professor of finance at Lingnan College, Sun Yat-sen University, serves as the dean of the Department of Finance, and also holds the positions of deputy director of the Teaching and Research Center for Corporate Finance, vice president of the Capital Market Research Institute of Sun Yat-sen University, and deputy director of the Human Resources Management Office of Sun Yat-sen University (on secondment). She obtained her PhD in finance from Erasmus University Rotterdam in the Netherlands in 2014. Before joining Lingnan College, she taught at the University of Groningen in the Netherlands and Erasmus University Rotterdam in the Netherlands. Her main research interests include corporate finance, China's debt problems, experimental and behavioral finance, and her research projects cover mergers and acquisitions, corporate IPOs, compensation management, innovation and entrepreneurship, and zombie enterprises. Her research has been published in top academic journals such as Journal of Financial and Quantitative Analysis, Games and Economic Behavior, Journal of Economic Behavior and Organization, Journal of Economic Dynamics & Control, Economic Research, Management World, and Journal of Management Science. She has won the Youth Award of the 22nd Zhejiang Provincial Philosophy and Social Sciences Excellent Achievement Award. She has also served as the principal investigator of the National Natural Science Foundation of China's youth project and the general project.