HOLGER DASKE, University of Mannheim
Email: daske@bwl.uni-mannheim.de
LUZI HAIL, University of Pennsylvania - The Wharton School
Email: lhail@wharton.upenn.edu
CHRISTIAN LEUZ, University of Chicago - Graduate School of Business, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI), University of Pennsylvania - Wharton Financial Institutions Center
Email: CLeuz@ChicagoGSB.edu
RODRIGO S. VERDI, Massachusetts Institute of Technology (MIT)
Email: rverdi@mit.edu

This paper examines the economic consequences of mandatory IFRS reporting around the world. We analyze the effects on market liquidity, cost of capital and Tobin's q in 26 countries using a large sample of firms that are mandated to adopt IFRS. We find that, on average, market liquidity increases around the time of the introduction of IFRS. We also document a decrease in firms' cost of capital and an increase in equity valuations, but only if we account for the possibility that the effects occur prior to the official adoption date. Partitioning our sample, we find that the capital-market benefits occur only in countries where firms have incentives to be transparent and where legal enforcement is strong, underscoring the central importance of firms' reporting incentives and countries' enforcement regimes for the quality of financial reporting. Comparing mandatory and voluntary adopters, we find that the capital market effects are most pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and again later, when IFRS become mandatory. While the former result is likely due to self-selection, the latter result cautions us to attribute the capital-market effects for mandatory adopters solely or even primarily to the IFRS mandate. Many adopting countries have made concurrent efforts to improve enforcement and governance regimes, which likely play into our findings. Consistent with this interpretation, the estimated liquidity improvements are smaller in magnitude when we analyze them on a monthly basis, which is more likely to isolate IFRS reporting effects.

TOBIAS SCHMIDT, Center for European Economic Research (ZEW)
Email: schmidt@zew.de
PEDRO FARIA, Instituto Superior Técnico - Technical University of Lisbon
Email: pmmfaria@gmail.com

In this paper we investigate the factors that lead firms to cooperate with partners from foreign countries on innovation activities. Portuguese and German data from the harmonised Community Innovation Survey (CIS III) allow us to compare innovation cooperation behaviour of private firms in the two countries. Using a bivariate probit model, we show that the characteristics of firms cooperating with foreigners in both countries are quite similar. International activities other than cooperation, firm size and the importance of protection methods for knowledge have a positive influence in both countries on the decision to cooperate with foreign partners. Some differences remain, however: In Germany, exporters are more likely to cooperate with foreign partners than non-exporters, whereas in Portugal this is not the case.

SREEKUMAR R. BHASKARAN, Southern Methodist University - Edwin L. Cox School of Business
Email: sbhaskar@cox.smu.edu
VISH KRISHNAN, University of California, San Diego - Rady School of Management
Email: vkrishnan@ucsd.edu

The growing sophistication of component technologies and the rising costs and uncertainties of developing and launching new products now require firms to collaborate in the development of new products. However, the management of new product development that occurs jointly between two firms presents a new set of challenges in sharing the costs and benefits of innovation. While collaboration enables each firm to focus on what it does best, it also introduces new issues associated with the alignment of decisions and incentives that have to be managed alongside conventional performance and timing uncertainties of new product development. In this paper, we conceptualize and formulate the joint-development of products involving two firms with differing development capabilities and examine the implications of arrangements that go beyond sharing of revenues to include sharing of development cost and work. We term these approaches that involve sharing of the development cost and sharing of the development work, investment sharing and innovation sharing, respectively. These cost and effort sharing mechanisms have subtle interactions with the degree to which revenues are shared between firms and the type of development project under consideration. Our analysis shows that investment and innovation sharing are particularly relevant for products with no pre-existing revenues and their benefits also depend on the degree to which revenues are shared between the firms. While investment sharing is more attractive for new to the world product projects with significant timing uncertainty, innovation sharing plays an important role in environments where projects experience product quality uncertainty, firms are similar in their capabilities, and the costs of integration of work across firms can be controlled. Our key contribution involves the modeling of joint work and decision making between collaborating firms and unearthing the complementary role of revenue, cost, and innovative effort sharing mechanisms for new product development. We translate our analytical findings into a managerial framework and illustrate the results with examples from the life-sciences and electronics industries.