Publications
Publications
- Forthcoming
- Management Science
Does Industry Employment of Active Regulators Weaken Oversight?
By: Jonas Heese
Abstract
I study whether industry employment of active regulators weakens oversight. To examine this question, I exploit that the Financial Reporting Enforcement Panel (FREP), the German capital-market regulator responsible for enforcing public firms’ compliance with accounting standards, allows its senior regulators to serve on boards of public firms during their FREP tenure. I find that firms are less likely to face enforcement actions after they appoint active regulators to their board. After such an appointment, firms are more likely to receive a qualified audit opinion, more likely to have an above normal risk of accounting manipulation as measured by an F-Score greater than 1, and exhibit higher income-increasing abnormal accruals. These findings suggest that directorships of active regulators can result in conflicts of interest that weaken oversight.
Keywords
Conflict-of-interest Policies; Directorships; Enforcement Actions; Industry Employment; Self-regulatory Organizations; Governance Compliance; Governing and Advisory Boards; Policy; Conflict of Interests
Citation
Heese, Jonas. "Does Industry Employment of Active Regulators Weaken Oversight?" Management Science (forthcoming). (Pre-published online February 15, 2022.)