The Unintended Consequences of Accounting-Based Regulation: Real Effects on European Football Players Transfer Market
This study provides evidence on the potential real effects of accounting-based regulation. We investigate the effects of Financial Fair Play (FFP) regulation, which required clubs participating in European football competitions to meet a strict earnings-based threshold (break-even rule). FFP counts gains from transfers of players towards the threshold, thus creating an incentive to engage in players transfers. We find that the overall volume of transfers of players, as well as the volume of transfers of young players, whose book value is typically zero, both increased following the regulation, with stronger effects in clubs subject to the FFP. Further, results show that the average gain recorded on players transfers increased significantly following the FFP for clubs subject to the regulation, and that these gains directly link to incentives to beat the benchmark in FFP break-even threshold. Finally, we find that the premium over the market value of players transferred in exchanges of players, which involve little to no cash fees, increased significantly. Overall, our findings suggest a real labor market effect on football players, caused by clubs engaging in real-activities-earnings-management in order to comply with accounting-based regulation.