The Effects of Regulatory Enforcement Disclosure: Evidence from OSHA’s Press Release about Safety Violations

Accounting and Management Control

Speaker :  Allen HUANG

HKUST

HEC Campus - Build.X Room 120

Abstract:

This study investigates the effects of disclosures of regulatory enforcement on peer firms. To isolate the effect of disclosure, we exploit a setting where the Occupational Safety and Health Administration (OSHA) issues a press release about safety violations if the financial penalty is above a cutoff. Using a regression discontinuity design, we find that OSHA’s press release induces peer firms to increase their safety investments, consistent with the deterrence effect of enforcement disclosure. In cross-sectional tests, we find that this effect is stronger when peer firms headquarter in states with higher labor union coverage or are in industries with higher labor mobility, and when peer firms have higher advertisement expenses, consistent with information sharing among peer firms’ employees which increases their safety awareness being a possible mechanism. Meanwhile, we find that these firms also engage in more accrual earnings management, suggesting an unintended consequence of enforcement disclosures.