Accounting Regulation Compliance and Enforcement Impact on Reporting Quality

Abstract

This research investigates the complex relationship between accounting regulation
compliance, enforcement mechanisms, and financial reporting quality through a novel
methodological framework that integrates computational linguistics, network analysis,
and evolutionary game theory. Departing from traditional econometric approaches that
treat compliance as a binary variable, we conceptualize compliance as a multidimensional spectrum influenced by regulatory complexity, corporate governance structures,
and enforcement ecosystem dynamics. Our methodology employs a hybrid approach
combining natural language processing of regulatory documents, agent-based modeling of compliance behavior, and longitudinal analysis of enforcement actions across
multiple jurisdictions from 1995 to 2004. We introduce the Regulatory Compliance
Index (RCI), a composite measure that captures both formal adherence to rules and
substantive alignment with regulatory intent. The study examines how variations
in enforcement intensity, regulatory design characteristics, and corporate adaptation
strategies collectively shape reporting quality outcomes. Our findings reveal non-linear
relationships between enforcement severity and reporting quality, with diminishing
returns beyond optimal enforcement thresholds. We identify three distinct compliance archetypes—procedural, substantive, and strategic—each associated with different reporting quality outcomes. The research contributes to regulatory theory by
demonstrating how regulatory complexity interacts with enforcement capacity to produce unintended consequences, including compliance ritualism and creative compliance
strategies. Our results suggest that reporting quality is maximized not through maximal enforcement but through targeted interventions that address specific compliance
barriers and promote substantive rather than procedural adherence. This study offers
practical insights for regulators seeking to design more effective compliance ecosystems
and provides a novel analytical framework for future research on regulatory effectiveness.