Mandatory Disclosure, Finance and Growth

• Applicant: Professor Dr. Zoltan Novotny-Farkas
• Subject Area: Accounting and Finance
• Term: from 2011 to 2012
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 213432057

The widespread mandatory introduction of IFRS around the world represents a major change in the reporting environment and overall information transparency of adopting countries. In particular, IFRS accounting is often assumed to induce an increase in firms disclosure levels. Existing empirical literature on the resulting effects so far has almost exclusively focused on economic costs and benefits on the firm-level. Research on the macro-economic consequences of the change in reporting regime has been scarce. I aim to take a step toward filling this gap by providing an empirical analysis of the impact of IFRS adoption on countries economic performance. Specifically, I investigate how the mandatory introduction of IFRS affects (industry) growth and the creation of new establishments in adopting countries. Based on the insights from the finance and economics literature I further examine one specific channel through which financial accounting information affects growth, i.e. the reduction of cost of external finance. In addition, I investigate whether the macro-economic effects of the reporting regime change are different in stock market based versus bank-based economies. I expect the results of my study to provide useful insights into the aggregate economic consequences of mandating (more) disclosure.

• DFG Programme: Research Fellowships
• International Connection: USA
• Host: Professor Dr. Robert Holthausen