Accounting and Business Research | 2021
Special section editorial: Enforcement of financial reporting
Abstract
This editorial introduces and assesses the collective contribution of three papers that collectively provide a special section of ABR on the topic of corporate financial reporting enforcement. Empirically, the papers provide insights ranging from an analysis of the cross national impact of enforcement actions on the quality of corporate financial reporting in the banking sectors of 37 countries to detailed case studies of enforcement processes, outcomes and consequences in two contrasting institutional settings – namely, Romania and Italy – and covering, respectively, the development of a national Financial Reporting Enforcement System (FRES) and the institutional actions, interactions and silences concerning a controversial share revaluation in 2013 by the Bank of Italy. This editorial summarises the contributions made by the three papers and highlights the continuing scope for empirical and theoretical research on the operation and functionality of corporate financial reporting enforcement systems. As an essential feature of the global financial architecture, enforcement has started to attract the interest of scholars from diverse methodological perspectives. Indicatively, the bulk of the economics-informed research paradigm has demonstrated that effective enforcement leads to improved financial reporting, positive market reactions and corporate outcomes (Daske et al. 2008, Christensen et al. 2013, De George et al. 2016). While the effectiveness of enforcement differs widely around the world (Brown et al. 2014), there has been a firm belief in policy making that strong enforcement is necessary since it provides concrete corporate benefits through enhanced financial reporting quality (see Christensen et al. 2013, Brown et al. 2014). Recent literature, however, suggests that enforcement inevitably brings with it significant costs (Florou et al. 2020). The conventional wisdom that more regulation and enforcement lead always to better outcomes has also been challenged (Christensen et al. 2020), although the way the enforcement literature has been dominated by empirical investigation of the US context (Christensen et al. 2013, Hollie et al. 2013) does make it difficult to produce generalisable conclusions applicable worldwide. This is a point reiterated by scholars working within a sociopolitical and institutional perspective as they drew attention to the complex structure of the global regulatory architecture, particularly the conflict between the global nature of financial reporting rules and the institutional differences in the social, political and economic contexts upon which such enforcement efforts were applied (Davies and Green 2008, Humphrey et al. 2009, Arnold 2012, Caramanis et al. 2015). Recognising such a state of affairs, and development potential in stimulating enforcement related research, the special section call for papers emphasised the importance of studying the establishment and practical operation of corporate financial reporting enforcement agencies,