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Mandated Financial Reporting and Corporate Innovation

Author

Listed:
  • Matthias Breuer
  • Christian Leuz
  • Steven Vanhaverbeke

Abstract

We investigate the impact of reporting regulation on corporate innovation activity. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing a greater share of firms to publicly disclose their financial statements reduces firms’ innovative activities at the industry level. At the same time, it increases firms’ reliance on patenting to protect their innovations, to the extent they continue innovating. Our evidence is consistent with reporting mandates having significant real effects by imposing proprietary costs on innovative firms, which diminishes their incentives to engage in innovative activities. Importantly, we examine and find that this decline in innovative activity is not fully compensated by positive information spillovers (e.g., to competitors, suppliers, and customers) within industries. Thus, our evidence implies that proprietary costs induced by reporting mandates are important consideration for regulators and policy makers.

Suggested Citation

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