Reporting Regulation and Corporate Innovation

91 Pages Posted: 17 Sep 2019 Last revised: 24 Dec 2020

See all articles by Matthias Breuer

Matthias Breuer

Columbia University

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Center for Financial Studies (CFS); University of Pennsylvania - Wharton Financial Institutions Center; CESifo Research Network

Steven Vanhaverbeke

Erasmus University Rotterdam (EUR) - RSM Erasmus University

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2020

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.

Keywords: Financial Reporting, Disclosure, Regulation, Innovation, Patents, Growth

JEL Classification: K22, L51, M41, M42, M48, O43, O47

Suggested Citation

Breuer, Matthias and Leuz, Christian and Vanhaverbeke, Steven, Reporting Regulation and Corporate Innovation (August 26, 2020). LawFin Working Paper No. 8, Available at SSRN: https://ssrn.com/abstract=3449813 or http://dx.doi.org/10.2139/ssrn.3449813

Matthias Breuer

Columbia University ( email )

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Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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European Corporate Governance Institute (ECGI)

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Center for Financial Studies (CFS) ( email )

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Germany

University of Pennsylvania - Wharton Financial Institutions Center

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CESifo Research Network

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Steven Vanhaverbeke

Erasmus University Rotterdam (EUR) - RSM Erasmus University ( email )

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Netherlands

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