Germar Ebner, Matthias Höltken, Henning Zülch

• This paper contributes to the understanding of the German two-tiered enforcement system and the ‘name and shame’ mechanism as its deterrent. We investigate short-term reactions to error announcements published between 2006 and 2013 and find significant evidence for differences of investor reactions between the early and the current years of enforcement. Disentangling the contributing factors of error severity, we provide evidence that investor reactions are primarily driven by the impact of error announcements on profitability and financial leverage. Conversely, we detect the amount of errors established to be negatively associated with investor reactions indicating that extensive error announcements have an attenuating effect on investor reactions. Further multivariate analyses provide additional insights referring to determinants of investor reactions by examining effects of stated errors on core earnings, effects of errors triggered due to second-guessing the use of professional judgment, and changes of investor perception over time.