Working Paper: NBER ID: w26291
Authors: Matthias Breuer; Christian Leuz; Steven Vanhaverbeke
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: reporting regulation; corporate innovation; financial statements; information spillovers; proprietary costs
JEL Codes: K22; L51; M41; M48; O43; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mandatory reporting (I19) | Decrease in the number of innovating firms (O31) |
| Increase of 10% in firms required to report (H32) | 3% decrease in the share of innovating firms (O31) |
| Mandatory reporting (I19) | Proprietary costs on innovative firms (O36) |
| Proprietary costs on innovative firms (O36) | Deterrent effect on innovation incentives (O31) |
| Mandatory reporting (I19) | Positive spillover effects on related firms (L25) |
| Decrease in the number of innovating firms (O31) | Redistribution of innovative activity (O39) |