Enforcement policy, disclosure regulation, and investment efficiency

The optimal enforcement policy of disclosure regulation remains debated. Some regulators argue for targeting serious violations alone, while others advocate pursuing even the smallest infractions. This paper develops an analytical model to examine how a chosen enforcement policy affects a firm's project selection. In the model, the manager chooses between a riskier project and a safer project and decides whether to disclose information about the firm's final payoff. The regulator mandates disclosure and commits to either a focused enforcement policy (i.e., pursuing only severe violations) or a uniform enforcement policy (i.e., pursuing violations regardless of severity). The main finding is that a focused enforcement policy discourages the manager from taking risks while a uniform enforcement policy encourages risk-taking. Therefore, a uniform policy enhances investment efficiency when the riskier project is efficient; in contrast, a focused policy enhances investment efficiency when the safer project is efficient. This paper provides insights into the regulatory debate on enforcement policy.

Name thesis:degree_name

Doctor of Philosophy

Discipline thesis:degree_discipline

Accounting

Grantor

The University of Texas at Austin

Year dc:date.issued

2025

Author dc:creator

• Chen, Yiying, Ph. D.

Advisor dc:contributor.advisor

• Laux, Volker

Committee members dc:contributor.committeemember

• Alti, Aydogan
• Hwang, Hyun
• Zheng, Ronghuo

• Disclosure regulation
• Project selection
• Enforcement policy
• Focused and uniform policy

Identifier URI

https://doi.org/10.26153/tsw/61081

OAI identifier oai:identifier

oai:repositories.lib.utexas.edu:2152/133753