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Reporting Regulation and Corporate Innovation

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  • Matthias Breuer
  • Christian Leuz
  • Steven Vanhaverbeke

Abstract

We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe’s regulation and an enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements reduces the total number of innovating firms in the industry, but not total innovation spending. Our findings suggest that reporting regulation imposes proprietary costs on innovative firms, especially smaller ones, thereby discouraging their innovation activity. At the same time, reporting regulation provides positive information spillovers to other firms (e.g., competitors, suppliers, and customers), especially larger ones, thereby concentrating innovation spending among a few large firms. Thus, financial reporting regulation has aggregate and distributional effects on corporate innovation that are important to consider by policy makers.

Suggested Citation

  • Matthias Breuer & Christian Leuz & Steven Vanhaverbeke, 2019. "Reporting Regulation and Corporate Innovation," NBER Working Papers 26291, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26291
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    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. 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.
    4. 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.

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    More about this item

    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
    • 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

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