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Firms coordinate their actions with industry peers, thereby affecting product market competition. Using the cartel setting, we investigate how financial reporting transparency affects industry coordination. Economic theory predicts that transparency might either prolong cartel duration through increased contracting efficiency, or destabilize cartels due to earlier detection of deviating members. We test these predictions on firms indicted by the European Commission for anticompetitive behavior between 1980 and 2010. Using reporting under internationally recognized accounting standards (IFRS or U.S. GAAP) as our measure of reporting transparency, we find that following a transparent accounting framework decreases cartel duration. We show this finding is partly explained by transparent segment disclosure, which provides a means for the verification of agreed-upon sales for a product or region. Consistent with the view that transparent reporting leads to earlier detection of deviating members, we further show that transparency lowers cartel duration when the likelihood of cheating is high.

Firms coordinate their actions with industry peers, which affects product market competition. We investigate how financial reporting transparency affects industry coordination using the cartel setting. Economic theory predicts that transparency might either prolong cartel duration through increased contracting efficiency or destabilize cartels due to earlier detection of deviating members. We test these predictions using firms that were indicted by the European Commission for anticompetitive behavior between 1980 and 2010. Using reporting under international accounting standards (IFRS or U.S. GAAP) as our measure of reporting transparency, we find that following international accounting standards increases firms' likelihood of exiting the cartel in the next year by 84%. This finding can be explained by the enhanced ability of cartel members to detect cheating by their fellow members when their reports are more transparent. Consistent with this argument, we further show that transparency lowers cartel duration when the opportunity costs of cooperation and the likelihood of cheating are high. Does reporting transparency affect industry coordination?Evidence from the duration of international cartels Abstract: Firms coordinate their actions with industry peers, which affects product market competition. We investigate how financial reporting transparency affects industry coordination using the cartel setting. Economic theory predicts that transparency might either prolong cartel duration through increased contracting efficiency or destabilize cartels due to earlier detection of deviating members. We test these predictions using firms that were indicted by the European Commission for anticompetitive behavior between 1980 and 2010. Using reporting under international accounting standards (IFRS or U.S. GAAP) as our measure of reporting transparency, we find that following international accounting standards increases firms' likelihood of exiting the cartel in the next year by 84%. This finding can be explained by the enhanced ability of cartel members to detect cheating by their fellow members when their reports are more transparent. Consistent with this argument, we further show that transparency lowers cartel duration when the opportunity costs of cooperation and the likelihood of cheating are high.

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