Real Effects of Transparency

Gassen, Müller, and Sellhorn investigate the impact of financial transparency on investment and product markets. They first collect field evidence, in cooperation with B03 and the Open Science Data Center, via surveys and interviews with standard setters, users, and firms on how financial reporting generates real effects on investment and product markets. The subsequent subprojects will test the suggested mechanisms using observational data. The project will use regulatory innovations to test for real effects of transparency on diverse outcomes such as firm location choices, consumer activism, environmental policy choices, pension plans, lease contracts, and incentive systems.

  • Research Question

    How does transparency affect real behavior, i.e. change consumer behavior as well as influence firms’ decisions about their location, investment, financing, incentive systems, and product design choices?

  • Motivation

    Accounting transparency can trigger a variety of real effects, both of expected as well as unexpected nature. For instance, policy makers can intentionally induce real effects through disclosure regulation (or targeted transparency) to shape firms’ actions in ways that are socially desirable, such as CSR related firm performance. Evidence on unexpected real effects, for instance disclosure requirements leading to altering firms’ investment decisions, supports the notion that real effects can also create unanticipated costs that policy-makers did not consider prior to changing regulation. Related earlier work has selectively studied settings in which data availability (pre-structured archives) and internal validity (quasi-experimental settings) were no obstacles. Our holistic use of complementary empirical approaches expands, triangulates, and contextualizes this prior work.

  • Research Program

    We investigate the impact of transparency regulation on investment and product markets. Starting by collecting survey and field evidence from firms, policy makers and stakeholders, we aim at identifying real effects, and exploring and describing how reporting generates those. A wide array of archival and field data helps us test these causal mechanisms empirically in the next steps. Employing a range of regulatory innovations, we investigate various real effects of transparency. The vast variety of expected and unexpected side effects of transparency, which we study throughout our research, spans over firms’ location choices, consumer activism, environmental policy choices, pension plans, lease contracts, and incentive systems, to name but a few phenomena.

  • Contribution

    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.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.