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


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

December 1, 2015

European Corporate Governance Institute (ECGI) - Law Working Paper No. 306/2016
Chicago Booth Research Paper No. 16-03

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.

Number of Pages in PDF File: 143

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


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Date posted: February 20, 2016 ; Last revised: March 9, 2016

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

Contact Information

Christian Leuz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)
HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

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National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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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