Within the UK's proactive financial-reporting enforcement regime, we examine the effect of increased regulatory scrutiny on equity values. We find that a fourfold increase in the likelihood of regulator-initiated reviews of financial reports reduces equity values by 1.3% on average. Reductions in equity values are largest for firms with strong private oversight that likely ensures that they are closer to their equity-value-maximizing level of transparency. Additional evidence suggests that competition increases and that managers' investment horizons decrease in industries selected for increased regulatory scrutiny, consistent with direct compliance costs not fully explaining the reduction in equity values.

We exploit two regulatory shocks to examine the informational effects of tightening preexisting mandatory disclosure rules. Canadian National Instrument 51‐101 in 2003 and the U.S. rule “Modernization of Oil and Gas Reporting” in 2009 introduced quasi‐identical amendments which effectively tightened the rules governing oil and gas reserve disclosures in both countries. We document significant changes in firms' reporting outcomes when the new regulations are introduced. We also find that the reserve disclosures filed under the new regulations are more closely associated with stock price changes and with decreases in bid‐ask spreads. Our findings are robust to controlling for other confounding factors such as time trends, other information disclosed simultaneously, financial reporting incentives, mispricing, and monitoring efforts.