143 Pages Posted: 20 Feb 2016 Last revised: 9 Mar 2016
Date Written: December 1, 2015
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: 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