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An International Meeting of American Accounting
Association
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The Effects of the SEC’s Accounting and Auditing Enforcement Releases on the Market Response to earnings information |
Joon S. Yang
University of Minnesota Duluth
Jerry W. Lin
University of Minnesota Duluth
Ehsan H. Feroz
University of Washington Tacoma
Abstract: The SEC announces its accounting-related enforcement actions in the Accounting and Auditing Enforcement Releases (AAERs). The AAER announcements are expected to signal important messages about the financial conduct or reporting by the registrants violating accounting regulations. An SEC enforcement action has the potential to affect the stock market’s expectation by signaling to the market that earnings reported by the firm is noisier (less precise) than previously assumed. Specifically, we investigate whether firms experience lower earnings response coefficients (ERCs) after they are cited in the AAERs. The results indicate that (i) the ERCs of the firms included in the AAERs are lower than those of the firms not included in the AAERs, and (ii) for the firms included in the AAERs, the ERCs for the post-AAER periods are lower than the ERCs of the same firms for the pre-AAER periods.