Economic Consequences of Financial Reporting and Disclosure Regulation:
A Review and Suggestions for Future Research*
Christian Leuz
Graduate School of Business, University of Chicago,
governanceEuropean Corporate Governance Institute (ECGI)
cleuz@chicagogsb.edu
and
Peter Wysocki
Sloan School of Management, Massachusetts Institute of Technology
wysockip@mit.edu
Comments Welcomed
March 2008
(First version: May 2006)
Abstract
This paper surveys the theoretical and empirical literature on the economic consequences of financial reporting and disclosure regulation. We integrate theoretical and empirical studies from accounting, economics, finance and law in order to contribute to the cross-fertilization of these fields. We provide an organizing framework that identifies firm-specific (micro-level) and market-wide (macro-level) costs and benefits of firms‟ reporting and disclosure activities and then use this framework to discuss potential costs and benefits of regulating these activities and to organize the key insights from the literature. Our survey highlights important unanswered questions and concludes with numerous suggestions for future research.
Keywords: Accounting, Asymmetric information, Capital markets, Institutional economics, International, Mandatory disclosure, Political economy, Regulation, Standards  JEL Classifications: D78; D82; G14; G18; G30; G38; K22; K42; M41; M42
* We wish to thank Andrew Karolyi, Ken Peasnell and seminar participants at New York University, Manchester Business School, 2007 AAA International Accounting Section Conference, 2007 INTACCT Workshop, and 2007 Accounting & Economics Conference in Fribourg for helpful comments and suggestions.
1. Introduction
Three recent trends have spurred the debate about financial reporting and disclosure regulations around the world.  First, international financial crises and corporate scandals often bring about securities regulation reforms and greater reporting and disclosure requirements.  The Asian Financial Crisis of 1997, the Enron debacle in the U.S., and the recent credit market crisis are but a few important examples.  In the aftermath of these events, regulators and policy makers have called for improved corporate transparency, increased scrutiny and often enacted significant changes to accounting and disclosure requirements and regulations. Second, stock exchanges and accounting standards bodies from numerous countries around the world have adopted International Financial Reporting Standards (IFR S) to achieve the stated goal of “harmonization” and “convergence” of accounting rules.  Third, both the debate about the competitiveness of U.S. capital markets and the increasing internationalization of capital markets highlight securities regulation as a global issue.1
Despite the importance of corporate transparency as a recurring policy issue, there is (i) limited research on the costs and benefits of financial reporting and disclosure regulation, (ii) few attempts to systematically organize the key economic principles of and empirical findings on this type of regulation, and (iii) little guidance on important unanswered questions about the economic consequences of regulating financial reporting and corporate disclosure.
This paper reviews the theoretical and empirical literature on the economic consequences of financial reporting and disclosure regulation, with a particular emphasis on recent research advances in the literature. We integrate theoretical and empirical studies from accounting, economics, finance and law in order to contribute to the cross-fertilization of these fields.
1 See, e.g., the U.S. Chamber of Commerce sponsored report by the Commission on the Regulation of U.S. Capital Markets in the 21st Century (2007).
Moreover, we provide an organizing framework that identifies firm-specific (micro-level) and market-wide (macro-level) costs and benefits of firms‟ reporting and disclosure activities.  We then use this framework to discuss the potential costs and benefits of regulating these activities in global capital markets and to organize the key insights from the literature. We highlight important unanswered ques
tions to provide directions for future research.2  As such, this survey and framework should prove useful to researchers, as well as standards setters, policy makers, and regulators as they debate the economic consequences of past and future regulatory choices.
Generally speaking, our survey finds a paucity of evidence on market-wide and aggregate economic and social consequences of reporting and disclosure regulation, rather than the consequences of individual firms‟ accounting and disclosure choices.  Until recently, most of the literature focuses on managers‟ voluntary disclosure and financial reporting choices.3These studies provide important insights into the nature of the private costs and benefits of voluntary reporting and disclosure choices and, in this sense, provide a micro foundation.  However, these studies provide few insights into the overall desirability, economic efficiency or aggregate outcomes of reporting and disclosure regulation. On the other hand, there has been a recent flurry of studies examining international differences in the effects of different regulatory regimes and on the economic consequences of regulatory changes, such as Regulation Fair Disclosure and the Sarbanes-Oxley Act. We synthesize the insights of these studies in our survey.  However, there are still many unanswered questions, especially, (i) why disclosure regulation is so pervasive; (ii) the dynamics and (iii) the process of regulation; (iv) the real and macro-economic consequences of disclosure regulation, (v) its complem
entarities with other regulations, (vi) its 2 Survey papers that review the disclosure literature or the information/asset pricing literatures include Healy and Palepu (2001), Core (2001), Amihud, Mendelson and Pedersen (2005), and Botosan (2006). Our review complements these surveys by highlighting recent research on the regulation of firms‟ financial reporting and disclosure activities. In addition, our review includes numerous new research studies that post-date prior surveys.
3 These recent advances are an impetus for our survey and are reviewed in detail.
optimal form given imperfect enforcement; and (vii) the issue of regulatory competition. We discuss these open questions and conclude our survey with suggestions for future research in these areas.
Despite the focus on regulation, this paper should not be understood as advocating the necessity of regulation or reforms to existing regulations.  In fact, we highlight the importance of market forces in influencing firms‟ disclosure and reporting choices, both in isolation as well as  the interactions with regulatory acts. For instance, we highlight that corporate transparency likely is a joint outcome of market forces and the incentives provided by various rules and regulations (including the quality of their enforcement). We also point to significant complementarities between the elements of a country‟s institutional infrastructure.  Given these complementarities, we highlight that unilateral chan
ges in disclosure and accounting rules are unlikely to yield the desired outcomes.  Similarly, we stress that global diversity in institutional and economic factors may limit the effectiveness of a “one-size-fits-all” set of global accounting standards and disclosure regulations.  Finally, we emphasize that the issue of firms‟ avoidance strategies, which have long been known to seriously impair the effectiveness of regulation, is further compounded by the growing integration of capital markets around the world, which provides firms with alternatives outside their home countries and leads to regulatory competition.
Our survey touches issues that are discussed in the economics literature on regulation in general, such as political lobbying and regulatory capture.  However, this literature often focuses on the regulation of product-market monopolists and the corresponding impact on consumers (see, e.g., Kahn, 1988; Laffont and Tirole, 1993). Disclosure settings have their own unique economic and regulatory issues where many firms interact with heterogeneous investors in capital markets. To highlight these unique disclosure issues, our framework identifies and
discusses: (i) firm-specific (micro-economic) costs and benefits arising from firms‟ voluntary disclosure activities, (ii) potential (macro-economic) market-wide costs and benefits of firms‟ voluntary disclosure activities, and (iii) aggregate costs and benefits of regulating and enforcing firms
‟ financial reporting and disclosure activities in global capital markets.
The survey is organized as follows.  Section 2 reviews the theoretical literature on the firm-specific costs and benefits of disclosure, the market-wide costs and benefits of financial reporting and disclosure, and costs and benefits of regulating these activities.  In section 3, we review empirical studies on firms‟ disclosure choices.  Section 4 presents and discus ses empirical studies on changes in disclosure regulation and across country comparisons of disclosure regimes.  Section 5 discusses new institutional research in accounting as well as recent studies on the adoption of International Financial Reporting Standards (IFRS) as these advances also help our understanding of the economic outcomes of financial reporting and disclosure regulation.  Section 6 concludes the paper with an extensive discussion of suggestions for future research.
2. Theory of Corporate Disclosure and Reporting Regulation
In this section, we outline the theory of firms‟ disclosure choices and the theory of disclosure regulation. We use a framework that first identifies possible firm-specific (micro-economic) and market-wide (macro-economic) costs and benefits of firms‟ disclosure activities in the absence of regulation. We then overlay the potential effects of disclosure and reporting regulation.  Finally, we gi
ve some consideration to the question of how to mandate disclosures, i.e., the mechanism and at which level, and how to enforce the rules.

版权声明：本站内容均来自互联网，仅供演示用，请勿用于商业和其他非法用途。如果侵犯了您的权益请与我们联系QQ:729038198，我们将在24小时内删除。