Public Firm Presence, Financial Reporting, and the Decline of U.S. Manufacturing
67 Pages Posted: 14 Aug 2019 Last revised: 6 Jul 2021
Date Written: August 11, 2019
We examine the relation between public firm presence and import competition. The information created by public firm presence may provide importers with insights they can use for competing with domestic firms. Consistent with this possibility, we document a positive relation between public firm presence and import competition. Using differences in the expected costs of the Sarbanes-Oxley Act as a source of plausibly exogenous variation in public firm presence after the act, we find evidence that this relation is causal. We use differences in the proportion of German firms reporting publicly around a major enforcement reform as a natural mechanism experiment, and find evidence that financial reporting is a mechanism through which public firm presence affects import competition. Additional mechanism tests and a falsification test estimated in the United Kingdom, where public and most private firms report publicly, suggest that information production is a mechanism through which public firm presence affects import competition. In total, our evidence suggests that to compete with domestic firms, foreign competitors make use of the information created by public firm presence, including what public firms disclose in financial reports. Consequently, our results provide evidence of competitors using the proprietary information disclosed in financial reports to compete with the disclosing firms and of information frictions affecting trade.
Keywords: Competition, Trade, Private Firms, Public Firms, Financial Reporting, Proprietary Costs, Disclosure Externalities
JEL Classification: F14, F16, G18, G38, L60, M41
Suggested Citation: Suggested Citation