The Economic Consequences of Increased Disclosure

63 Pages Posted: 20 Aug 1999

See all articles by Christian Leuz

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Multiple version iconThere are 2 versions of this paper

Date Written: July 1999

Abstract

Economic theory suggests that a commitment by a firm to increased levels of disclosure should lower the information asymmetry component of the firm's cost of capital. But while the theory is compelling, so far empirical results relating increased levels of disclosure to measurable economic benefits have been mixed. One explanation for the mixed results among studies using data from firms publicly registered in the US is that, under current US reporting standards, the disclosure environment is already rich. In this paper, we study German firms that have switched from the German to an international reporting regime (IAS or US GAAP), thereby committing themselves to increased levels of disclosure. We show that proxies for the information asymmetry component of the cost of capital for the switching firms, namely the bid-ask spread and trading volume, behave in the predicted direction compared to firms employing the German reporting regime.

JEL Classification: D82, G30, M41, M47

Suggested Citation

Leuz, Christian and Verrecchia, Robert E., The Economic Consequences of Increased Disclosure (July 1999). Available at SSRN: https://ssrn.com/abstract=171975 or http://dx.doi.org/10.2139/ssrn.171975

Christian Leuz (Contact Author)

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Robert E. Verrecchia

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