The Role of Information and Financial Reporting in Corporate Governance and Debt Contracting

We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multiperiod contracts among managers, directors, shareholders, and creditors

Noncompliance with Non-Accounting Securities Regulations and GAAP Violations

Using enforcement actions by the Securities and Exchange Commission (SEC) as a proxy for noncompliance with securities regulations, we examine whether a firm’s compliance with non-accounting laws and regulations is associated with GAAP violations. We find that firms that violate securities regulations related to non-accounting issues are more likely to report accounting restatements than control firms that comply with securities regulations. We also find that the difference between the two groups is significant only for the periods subsequent to the start of the noncompliance period but not for periods prior to this date. Our results highlight the interrelation between the accounting and compliance systems, and suggest that managers who are non-compliant with non-accounting regulations are also more likely to be non-compliant with accounting rules