Reporting Regulation and Corporate Innovation

85 Pages Posted: 17 Sep 2019 Last revised: 3 Mar 2025

See all articles by Matthias Breuer

Matthias Breuer

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Steven Vanhaverbeke

KU Leuven, Department Accounting, Finance and Insurance

Multiple version iconThere are 3 versions of this paper

Date Written: August 29, 2024

Abstract

We investigate the impact of reporting regulation on corporate innovation.  Exploiting thresholds in Europe’s regulation, we find that forcing firms to disclose financial statements reduces the number of innovating firms and the average firm’s innovation spending, but it does not reduce industry-wide total innovation spending.  Our results suggest that the regulation imposes proprietary costs on firms, which discourages innovation activity, especially by smaller firms.  We also show that the regulation provides positive information spillovers to other firms (e.g., competitors, suppliers, and customers), especially larger ones.  We complement our analysis with alternative innovation measures, including patents, and corroborate the results with an analysis of reporting changes due to an enforcement reform in Germany.  In sum, the European reporting regulation has aggregate and distributional effects on corporate innovation.  Importantly, it appears to concentrate innovative activities among fewer, mostly larger firms, which could reflect institutional features of our setting or more general economic forces.

Keywords: Financial Reporting, Disclosure, Regulation, Innovation, Patents, Growth

JEL Classification: K22, L51, M41, M42, M48, O43, O47

Suggested Citation

Breuer, Matthias and Leuz, Christian and Vanhaverbeke, Steven, Reporting Regulation and Corporate Innovation (August 29, 2024). LawFin Working Paper No. 8, Available at SSRN: https://ssrn.com/abstract=3449813 or http://dx.doi.org/10.2139/ssrn.3449813

Matthias Breuer

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI)

Brussels
Belgium

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

Leibniz Institute SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Steven Vanhaverbeke

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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