IDEAS home Printed from https://ideas.repec.org/p/zbw/cfswop/675.html
   My bibliography  Save this paper

Reporting regulation and corporate innovation

Author

Listed:
  • Breuer, Matthias
  • Leuz, Christian
  • Vanhaverbeke, Steven

Abstract

We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe's regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate. At the industry level, positive information spillovers (e.g., to competitors, suppliers, and customers) appear insufficient to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. Thus, financial reporting regulation has important aggregate and distributional effects on corporate innovation.

Suggested Citation

  • Breuer, Matthias & Leuz, Christian & Vanhaverbeke, Steven, 2021. "Reporting regulation and corporate innovation," CFS Working Paper Series 675, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:675
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/248410/1/1783492937.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Berger, Allen N. & Klapper, Leora F. & Udell, Gregory F., 2001. "The ability of banks to lend to informationally opaque small businesses," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2127-2167, December.
    2. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    3. Acs, Zoltan J. & Audretsch, David B., 1987. "Innovation in large and small firms," Economics Letters, Elsevier, vol. 23(1), pages 109-112.
    4. Andrew Ellul & Marco Pagano & Annalisa Scognamiglio, 2020. "Careers in Finance," EIEF Working Papers Series 2007, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2021.
    5. Pagano, Marco & Wagner, Christian & Zechner, Josef, 2023. "Disaster resilience and asset prices," Journal of Financial Economics, Elsevier, vol. 150(2).
    6. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    7. Zoltan J. Acs & David B. Audretsch, 2008. "Innovation in Large and Small Firms: An Empirical Analysis," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 1, pages 3-15, Edward Elgar Publishing.
    8. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(3), pages 985-985.
    9. Leuz, Christian & Triantis, Alexander & Yue Wang, Tracy, 2008. "Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 181-208, August.
    10. Christian Leuz & Peter D. Wysocki, 2016. "The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research," Journal of Accounting Research, Wiley Blackwell, vol. 54(2), pages 525-622, May.
    11. David Argente & Salomé Baslandze & Douglas Hanley & Sara Moreira, 2020. "Patents to Products: Product Innovation and Firm Dynamics," FRB Atlanta Working Paper 2020-4, Federal Reserve Bank of Atlanta.
    12. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    13. Zoltan J. Acs & David B. Audretsch, 2008. "Innovation, Market Structure, and Firm Size," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 2, pages 16-23, Edward Elgar Publishing.
    14. Amernic, Joel H., 1985. "The roles of accounting in collective bargaining," Accounting, Organizations and Society, Elsevier, vol. 10(2), pages 227-253, April.
    15. Neale Mahoney, 2015. "Bankruptcy as Implicit Health Insurance," American Economic Review, American Economic Association, vol. 105(2), pages 710-746, February.
    16. Michael Minnis & Nemit Shroff, 2017. "Why regulate private firm disclosure and auditing?," Accounting and Business Research, Taylor & Francis Journals, vol. 47(5), pages 473-502, July.
    17. Aobdia, Daniel & Cheng, Lin, 2018. "Unionization, product market competition, and strategic disclosure," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 331-357.
    18. Berger, Philip G., 2011. "Challenges and opportunities in disclosure research--A discussion of [`]the financial reporting environment: Review of the recent literature'," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 204-218, February.
    19. Berger, Philip G. & Choi, Jung Ho & Tomar, Sorabh, 2019. "Breaking it Down: Competitive Costs of Cost Disclosures," Research Papers 3774, Stanford University, Graduate School of Business.
    20. Christian Leuz, 2010. "Different approaches to corporate reporting regulation: How jurisdictions differ and why," Accounting and Business Research, Taylor & Francis Journals, vol. 40(3), pages 229-256.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matthias Breuer, 2021. "How Does Financial‐Reporting Regulation Affect Industry‐Wide Resource Allocation?," Journal of Accounting Research, Wiley Blackwell, vol. 59(1), pages 59-110, March.
    2. Bin Yan Ding & Feng Wei, 2022. "Executive resume information disclosure and corporate innovation: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3593-3610, December.
    3. Tseng, Kevin & Zhong, Rong (Irene), 2024. "Standing on the shoulders of giants: Financial reporting comparability and knowledge accumulation," Journal of Accounting and Economics, Elsevier, vol. 78(1).
    4. Raphael Duguay, 2022. "The Economic Consequences of Financial Audit Regulation in the Charitable Sector," Journal of Accounting Research, Wiley Blackwell, vol. 60(4), pages 1463-1498, September.
    5. Stephen Glaeser & Jeremy Michels & Robert E. Verrecchia, 2020. "Discretionary disclosure and manager horizon: evidence from patenting," Review of Accounting Studies, Springer, vol. 25(2), pages 597-635, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matthias Breuer, 2021. "How Does Financial‐Reporting Regulation Affect Industry‐Wide Resource Allocation?," Journal of Accounting Research, Wiley Blackwell, vol. 59(1), pages 59-110, March.
    2. Stiebale, Joel & Vencappa, Dev, 2022. "Import competition and vertical integration: Evidence from India," Journal of Development Economics, Elsevier, vol. 155(C).
    3. Klaus S. Friesenbichler, 2020. "Does EU-accession affect domestic market structures and firm level productivity?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(2), pages 343-364, May.
    4. Zoltán J. Ács & Pontus Braunerhjelm & David B. Audretsch & Bo Carlsson, 2015. "The knowledge spillover theory of entrepreneurship," Chapters, in: Global Entrepreneurship, Institutions and Incentives, chapter 7, pages 129-144, Edward Elgar Publishing.
    5. Breuer, Matthias, 2017. "How Does Financial-Reporting Regulation Affect Market-Wide Resource Allocation?," Working Papers 270, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    6. Békés, Gábor & Hornok, Cecília & Muraközy, Balázs, 2016. "Globalization and the markups of European firms," Kiel Working Papers 2044, Kiel Institute for the World Economy (IfW Kiel).
    7. Bruce A. Kirchhoff, 1992. "Entrepreneurship's Contribution to Economics," Entrepreneurship Theory and Practice, , vol. 16(2), pages 93-112, January.
    8. Baccini, Leonardo & Impullitti, Giammario & Malesky, Edmund J., 2019. "Globalization and state capitalism: Assessing Vietnam's accession to the WTO," Journal of International Economics, Elsevier, vol. 119(C), pages 75-92.
    9. Mulligan, Robert F., 2004. "Fractal analysis of highly volatile markets: an application to technology equities," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(1), pages 155-179, February.
    10. Bento, Pedro & Restuccia, Diego, 2021. "On average establishment size across sectors and countries," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 220-242.
    11. Pierce, Justin R., 2011. "Plant-level responses to antidumping duties: Evidence from U.S. manufacturers," Journal of International Economics, Elsevier, vol. 85(2), pages 222-233.
    12. He, Dongwei & Wang, Yunfei & You, Kai, 2023. "Market entry and the dynamics of export product quality: Evidence from Chinese manufacturing firms," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 692-706.
    13. Céspedes, Nikita & Aquije, Maria E. & Sánchez, Alan & Vera-Tudela, Rafael, 2014. "Productividad y tratados de libre comercio a nivel de empresas en Perú," Working Papers 2014-014, Banco Central de Reserva del Perú.
    14. Ito, Banri & Xu, Zhaoyuan & Yashiro, Naomitsu, 2015. "Does agglomeration promote internationalization of Chinese firms?," China Economic Review, Elsevier, vol. 34(C), pages 109-121.
    15. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    16. Joakim Gullstrand & Maria Persson, 2015. "How to combine high sunk costs of exporting and low export survival," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 23-51, February.
    17. Wilfred Dolfsma & Gerben Velde, 2014. "Industry innovativeness, firm size, and entrepreneurship: Schumpeter Mark III?," Journal of Evolutionary Economics, Springer, vol. 24(4), pages 713-736, September.
    18. Frederic Warzynski & Jan De Loecker, 2010. "Markups and Firm-level Exports," 2010 Meeting Papers 438, Society for Economic Dynamics.
    19. Yang, Gaoju & Wang, Fang & Huang, Xianhai & Chen, Hangyu, 2022. "Human capital inflow, firm innovation and patent mix," Journal of Asian Economics, Elsevier, vol. 79(C).
    20. Siying Ding & Ahmad Lashkaripour & Volodymyr Lugovskyy, 2024. "A Global Perspective on the Incidence of Monopoly Distortions," CESifo Working Paper Series 11211, CESifo.

    More about this item

    Keywords

    Innovation; Regulation; Disclosure; Financial Reporting; Patents; Growth;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:675. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/ifkcfde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.