Fragmented regulation and reporting quality

This paper studies regulatory fragmentation as a distinct dimension of the institutional environment and examines its implications for financial reporting quality. Using a panel of U.S. public firms from 2001 to 2021, we employ a text-based measure of fragmented regulatory oversight from firms’ 10-K disclosures that captures exposure to multiple federal agencies. We show that firms operating under more fragmented regulatory structures exhibit lower reporting quality, measured by discretionary accruals. The effect is concentrated in settings where oversight is highly dispersed, consistent with fragmented regulatory regimes increasing ambiguity and weakening monitoring clarity. Overall, the findings suggest that the organization of regulatory authority, beyond the level of regulatory attention, matters for the quality of financial reporting.