Reporting Regulation and Corporate Innovation

91 Pages Posted: 17 Sep 2019 Last revised: 9 Mar 2022

See all articles by Matthias Breuer

Matthias Breuer

Columbia University - Columbia Business School

Christian Leuz

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

Steven Vanhaverbeke

Erasmus University Rotterdam (EUR) - RSM Erasmus University

Multiple version iconThere are 3 versions of this paper

Date Written: August 26, 2020

Abstract

We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe’s regulation and an enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements reduces the total number of innovating firms in the industry, but not total innovation spending. Our findings suggest that reporting regulation imposes proprietary costs on innovative firms, especially smaller ones, thereby discouraging their innovation activity. At the same time, reporting regulation provides positive information spillovers to other firms (e.g., competitors, suppliers, and customers), especially larger ones, thereby concentrating innovation spending among a few large firms. Thus, financial reporting regulation has aggregate and distributional effects on corporate innovation that are important to consider by policy makers.

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 26, 2020). 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 ( email )

3022 Broadway
New York, NY 10027
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Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Leibniz Institute SAFE ( email )

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Germany

European Corporate Governance Institute (ECGI)

Brussels
Belgium

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

Center for Financial Studies (CFS) ( email )

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Germany

CESifo Research Network

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Steven Vanhaverbeke

Erasmus University Rotterdam (EUR) - RSM Erasmus University ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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