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Measurement Matters: Financial Reporting and Productivity

Author

Listed:
  • John M. Barrios
  • Brian C. Fujiy
  • Petro Lisowsky
  • Michael Minnis

Abstract

We examine how differences in financial reporting practices shape firm productivity. Leveraging new audit questions in the U.S. Census Bureau's 2021 Management and Organizational Practices Survey (MOPS), and complementary tax return data from the Internal Revenue Service (IRS) and detailed financial records from Sageworks, we find that (i) variation in reporting quality explains 10-20 percent of intra-industry total factor productivity dispersion, and (ii) evidence of complementarity between the effects of financial audits and management practices driving firm productivity. We then examine the underlying mechanisms. First, audits function as a managerial technology, improving the precision of internal information and raising efficiency, with stronger effects in competitive, low-margin industries and among younger firms. Second, exploiting cross-state variation in tax incentives, we show that audits constrain underreporting and mitigate the downward bias in measured productivity. Together, these results highlight the underrated importance of financial reporting quality driving firm productivity.

Suggested Citation

  • John M. Barrios & Brian C. Fujiy & Petro Lisowsky & Michael Minnis, 2025. "Measurement Matters: Financial Reporting and Productivity," Working Papers 25-72, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:25-72
    as

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    File URL: https://www2.census.gov/library/working-papers/2025/adrm/ces/CES-WP-25-72.pdf
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    References listed on IDEAS

    as
    1. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
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    More about this item

    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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