Disclosure and Reporting Regulation of Financial Statements and its Impact on Innovation, Competition and Investment Efficiency

Financial information disclosure is vital for the working of the economy. Reporting regulation increases public disclosure and is intended to improve capital allocation in the economy. Prior empirical studies have provided evidence on this matter and show that it reducing information asymmetries between managers of firms and capital providers. However, disclosure regulation may also entail various costs and unintended consequences. Our lack of understanding of the full consequences of disclosure regulation is also reflected in the different legislations across countries. For example, in the U.S. most private firms are not required to disclose financial information. In contrast, Europe requires millions of private firms to produce and disclose financial statements. We are still far from answering the question of whether the market-wide benefits of regulating disclosure exceed the aggregate costs. My proposed research project aims to provide causal evidence on different dimensions of costs and unintended consequences of regulation using a quasi-natural experiment. Specifically, I will be the first to examine the potential negative or positive consequences on innovation, competition and investment efficiency. Since these aspects are key drivers for economic growth, it is of great interest to understand how disclosure regulation affects these factors.