The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research

143 Pages Posted: 20 Feb 2016 Last revised: 9 Mar 2016

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

Peter D. Wysocki

University of Miami - School of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2015

Abstract

This paper discusses the empirical literature on the economic consequences of disclosure and financial reporting regulation (including IFRS adoption), drawing on U.S. and international evidence. Given the policy relevance of research on regulation, we highlight the challenges with: (i) quantifying regulatory costs and benefits, (ii) measuring disclosure and reporting outcomes, and (iii) drawing causal inferences from regulatory studies. Next, we discuss empirical studies that link disclosure and reporting activities to firm-specific and market-wide economic outcomes. Understanding these links is important when evaluating regulation. We then synthesize the empirical evidence on the economic effects of disclosure regulation and reporting standards, including the evidence on IFRS adoption. Several important conclusions emerge. We generally lack evidence on market-wide effects and externalities from regulation, yet such evidence is central to the economic justification of regulation. Moreover, evidence on causal effects of disclosure and reporting regulation is still relatively rare. We also lack evidence on the real effects of such regulation. These limitations provide many research opportunities. We conclude with several specific suggestions for future research.

Keywords: Transparency, Regulation, Accounting standards, Capital markets, Institutional economics, International accounting, Disclosure, IFRS, Political economy, Cost-benefit analysis, Real effects

JEL Classification: D78, D82, G14, G18, G30, G38, K22, K42, M41, M42

Suggested Citation

Leuz, Christian and Wysocki, Peter D., The Economics of Disclosure and Financial Reporting Regulation: Evidence and Suggestions for Future Research (December 1, 2015). European Corporate Governance Institute (ECGI) - Law Working Paper No. 306/2016; Chicago Booth Research Paper No. 16-03. Available at SSRN: https://ssrn.com/abstract=2733831 or http://dx.doi.org/10.2139/ssrn.2733831

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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Cambridge, MA 02138
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HOME PAGE: http://www.nber.org

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

University of Pennsylvania - Wharton Financial Institutions Center

3641 Locust Walk
Philadelphia, PA 19104-6218
United States

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

Peter D. Wysocki

University of Miami - School of Business Administration ( email )

Department of Accounting - K/E 308
5250 University Drive
Coral Gables, FL 33146-6531
United States
305-284-8618 (Phone)

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