Introduction and overview

This report reviews empirical research on the economic effects of disclosure and financial reporting regulation in the United States and internationally. It examines how major events, including the Asian financial crisis, Enron, and the 2008 global crisis, drove regulatory reform and greater adoption of International Financial Reporting Standards (IFRS). The authors highlight that regulation aims to enhance transparency and reduce information asymmetry, yet evidence on its overall economic benefits remains limited and often context-dependent.

Cost-Benefit analysis, identification, and measurement of disclosure and reporting

Quantifying the costs and benefits of disclosure regulation is challenging due to difficulties in measuring reporting quality and isolating causal effects. Many studies struggle to separate the impact of regulation from other concurrent factors, limiting the generalisability of results. The authors emphasise the need for “evidence-based regulation,” supported by systematic evaluation similar to medical research. Such frameworks are currently underdeveloped in accounting and finance. Costs can include compliance burdens and reduced managerial flexibility, while benefits typically involve improved capital allocation, lower information asymmetry, and better governance.

Empirical evidence from disclosure studies

Research finds that higher-quality and more frequent disclosure generally improves market liquidity and reduces firms’ cost of capital. These effects occur mainly through lower information asymmetry between managers and investors. However, most findings relate to voluntary disclosure, which may not reflect the broader impact of mandatory rules. Voluntary disclosure usually occurs when private benefits exceed costs, while regulation is justified when social benefits outweigh private ones. Evidence on real effects—such as changes in investment or firm value—is still limited, and market-wide externalities are rarely measured.

Evidence on the economic effects of disclosure regulation

Studies of U.S. regulations, including Regulation Fair Disclosure (Reg FD) and the Sarbanes–Oxley Act (SOX), provide mixed results. Reg FD reduced selective information sharing and improved fairness but led to declines in analyst coverage, particularly for smaller and technology firms. SOX strengthened governance and audit oversight, enhancing investor confidence but imposing significant compliance costs. Cross-country research suggests that enforcement quality largely determines regulatory outcomes. Jurisdictions with stronger legal institutions and investor protection frameworks tend to experience greater improvements in transparency and market efficiency.

Evidence on the economic effects of mandated reporting standards

Research on IFRS adoption indicates improvements in reporting comparability and, in some cases, enhanced liquidity and access to capital markets. However, these benefits vary across firms and countries. The impact of IFRS depends heavily on enforcement strength, auditing quality, and local institutional conditions. The authors caution against assuming uniform benefits, noting that regulatory outcomes depend on how well standards align with domestic economic and legal environments. Evidence suggests that without effective enforcement, the intended benefits of global reporting convergence remain limited.

Suggestions for future research

Leuz and Wysocki recommend that future research focus on establishing causal relationships between disclosure regulation and economic outcomes, expanding beyond firm-level studies to consider market-wide and welfare effects. They call for more work in non-U.S. contexts to understand institutional variation, and for greater exploration of firms’ strategic responses, including avoidance or adaptation to new rules. Integrating insights from economics, finance, and political economy is encouraged to better inform regulatory design and evaluation.

Conclusion

The report concludes that while disclosure and financial reporting regulation are central to improving market transparency, evidence on their net benefits is incomplete. Developing robust causal methods, expanding international evidence, and embedding evaluation mechanisms into policy processes are essential steps toward more effective, evidence-based financial regulation.