Reporting Regulation and Corporate Innovation

Center for Financial Studies Working Paper No. 675, 2021

Columbia Business School Research Paper Forthcoming

94 Pages Posted: 22 Dec 2021 Last revised: 24 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) - Rotterdam School of Management (RSM)

Multiple version iconThere are 3 versions of this paper

Date Written: December 20, 2021

Abstract

We investigate the impact of reporting regulation on corporate innovation. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing firms to publicly disclose their financial statements discourages innovative activities. Our evidence suggests that reporting regulation has significant real effects by imposing proprietary costs on innovative firms, which in turn diminish their incentives to innovate. At the industry level, positive information spillovers (e.g., to competitors, suppliers, and customers) appear insufficient to compensate the negative direct effect on the prevalence of innovative activity. The spillovers instead appear to concentrate innovation among a few large firms in a given industry. Thus, financial reporting regulation has important aggregate and distributional effects on corporate innovation.

Keywords: Innovation, Regulation, Disclosure, Financial Reporting, 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 (December 20, 2021). Center for Financial Studies Working Paper No. 675, 2021, Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3990123 or http://dx.doi.org/10.2139/ssrn.3990123

Matthias Breuer

Columbia University - Columbia Business School ( email )

3022 Broadway
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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)

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Center for Financial Studies (CFS) ( email )

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Steven Vanhaverbeke

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

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Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

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