Mandated Financial Reporting and Corporate Innovation

71 Pages Posted: 17 Sep 2019

See all articles by Matthias Breuer

Matthias Breuer

Columbia University

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

Steven Vanhaverbeke

Erasmus University Rotterdam (EUR) - RSM Erasmus University

Multiple version iconThere are 2 versions of this paper

Date Written: September 7, 2019

Abstract

We investigate the impact of reporting regulation on corporate innovation activity. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing a greater share of firms to publicly disclose their financial statements reduces firms’ innovative activities at the industry level. At the same time, it increases firms’ reliance on patenting to protect their innovations, to the extent they continue innovating. Our evidence is consistent with reporting mandates having significant real effects by imposing proprietary costs on innovative firms, which diminishes their incentives to engage in innovative activities. Importantly, we examine and find that this decline in innovative activity is not fully compensated by positive information spillovers (e.g., to competitors, suppliers, and customers) within industries. Thus, our evidence implies that proprietary costs induced by reporting mandates are important consideration for regulators and policy makers.

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

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

Suggested Citation

Breuer, Matthias and Leuz, Christian and Vanhaverbeke, Steven, Mandated Financial Reporting and Corporate Innovation (September 7, 2019). Available at SSRN: https://ssrn.com/abstract=3449813 or http://dx.doi.org/10.2139/ssrn.3449813

Matthias Breuer

Columbia University ( email )

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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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European Corporate Governance Institute (ECGI)

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Belgium

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

Center for Financial Studies (CFS) ( email )

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Frankfurt am Main, 60323
Germany

University of Pennsylvania - Wharton Financial Institutions Center

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Philadelphia, PA 19104-6218
United States

CESifo Research Network

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Munich, DE-81679
Germany

Steven Vanhaverbeke

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

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

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