Turning to external consequences of transparency, Gassen, Müller, and Sellhorn investigate how information induces real effects by shaping senders’ and receivers’ actions in the real economy. The project will focus on (a) the information needs of advocacy groups, employees, and consumers as new users of corporate reporting; (b) new transparency requirements in the evolving area of mandatory sustainability reporting; and (c) new real effects, including those intended (and unintended) by policymakers, who use transparency regulation as a means of fostering public policy goals. The project will contribute to our general understanding of the positive and negative economic effects of firm transparency.
How do transparency requirements induce real effects via a causal chain of disclosure, stakeholder responses, and firms’ adaptation processes?
Motivation zur Forschung
In the second funding period, we will extend our focus to the emerging areas of mandatory sustainability reporting and non-traditional users of corporate reporting. Doing so will shed light on the causal mechanisms by which required disclosures can help stakeholders hold firms accountable - including for their environmental and social impacts. This shift in focus is motivated by the recent development that corporate transparency requirements (in particular related to sustainability matters) is emerging as a major new building block of environmental and social policy making - as clearly evidenced by the EU’s European Green Deal. Besides working on the real effects of sustainability reporting on non-traditional stakeholders, we will continue to assess how transparency and its regulation affect receivers’ and senders’ own economic decision-making, for example, by inducing them to generate and use new information not previously available.
In the second funding round, we will delve more deeply into three aspects to extend the findings of the first funding period. The second-round work package I (“New users and information needs”) reflects corporate reporting expanding and increasingly catering to non-traditional, under-researched stakeholders such as advocacy groups, employees, and consumers. We plan to continue exploring these stakeholders along with their information needs and processing capabilities. Work package II (“New transparency requirements”) puts mandatory sustainability reporting, the emerging megatrend in transparency regulation, center-stage. We propose to build the required institutional knowledge in close cooperation with A07, which focuses on the uncertainty that sustainability reporting introduces and the learning processes that it triggers. Work package III (“New real effects”) then reflects the observation that corporate reporting increasingly serves as a regulatory tool for achieving public policy objectives (e.g., Hombach and Sellhorn, 2019b). Understanding its effectiveness and efficiency - including compared to other policy tools (e.g., subsidies, quantity regulation, behavior regulation, and taxation) - requires more research into its intended and unintended consequences. Building on our first-period work, we will study these consequences - including potential settings where well-intended transparency requirements may induce net-negative welfare effects. This involves broadening the range of transparency requirements and real effects studied.
Real effects as by-products of policy changes can lead to desired as well as costly alterations in firm and consumer behavior, triggering often unanticipated economic consequences. Building a fuller understanding of real effects and their determinants helps policy makers achieve intended objectives while minimizing costly side effects of transparency regulation. Our research directly caters towards the knowledge and information available to policy makers and regulators, aiding their cost-benefit analyses and decision-making processes.