Financial Reporting Frequency and Corporate Innovation

Abstract

We examine how the regulation of financial reporting frequency affects corporate innovation. We use a difference-in-differences approach based on a sample of treatment firms that experience a change in their reporting frequency and matched industry peers and control firms whose reporting frequency remains unchanged. We find that higher reporting frequency significantly reduces treatment firms’ innovation output, but find no evidence that the net externality effect on industry peers is statistically significant. Together, our results are consistent with the hypothesis that frequent reporting induces managerial myopia and impedes corporate innovation.

Keywords: regulation, reporting frequency, innovation, managerial myopia, externality

JEL Classification: G14, G18, M41, M45