Strength of Regulation for Financial Statements Disclosure: Evidence from the German Enforcement System

Abstract

Before 2007, in Germany was the enforcement of the publication of financial statements very weak and disclosure rates were low. Afterwards, a new area of the publicity of financial statements began. Based on an EU-directive the disclosure of financial statements was transferred into a new system. The former disclosure at local courts is now replaced by an electronic commercial register. This register leads to an improved enforcement system. A major part of the installed enforcement system is a newly formed Federal Office of Justice. The duty of that Federal Office of Justice is to enforce the electronic disclosure of financial statements. The enforcement process now includes a system of cumulative fines dependent upon the publication delay. This paper discusses the need for regulation in the field of financial statements disclosure. Further, we deliver a comprehensive description of the newly installed enforcement system in Germany. The empirical analyses presented in this paper are focused on the power of the enforcement process. At first, the results show an accelerated disclosure during the years 2006 and 2007. As the results confirm, the new enforcement structure has an effect on the disclosure delay. Moreover, the paper presents empirical evidence that disclosure delays decreased significantly after the introduction of the enforcement process.