Public Firm Presence, Financial Reporting, and the Decline of U.S. Manufacturing

Abstract

We examine the relation between public firm presence and import competition. The information created by public firm presence may provide importers with insights they can use for competing with domestic firms. Consistent with this possibility, we document a positive relation between public firm presence and import competition. We find similar results when using differences in the expected costs of the Sarbanes‐Oxley Act as a source of plausibly exogenous variation in public firm presence after the act. We use differences in the proportion of German firms reporting publicly around a major enforcement reform as a natural mechanism experiment, and find evidence that financial reporting is a channel through which public firm presence relates to import competition. Additional mechanism tests and a falsification test estimated in the United Kingdom, where public and most private firms report publicly, further support this inference. In total, our evidence is consistent with foreign competitors using the information created by public firm presence, including what public firms disclose in financial reports, to compete with domestic firms. Consequently, our results provide evidence of competitors using the proprietary information disclosed in financial reports to compete with the disclosing firms and of information frictions affecting trade.

Bridging Theory and Empirical Research in Accounting

“…Although facts assembled by descriptive studies alone do not provide deeper or generalizable insights, particularly robust and important facts can provide an input into theory development. For example, mounting descriptive evidence shows disclosure regulation appears to hurt some firms' competitive position and innovation incentives (e.g., Bernard [2016], Breuer [2021], Glaeser and Omartian [2022], Berger, Choi, and Tomar [2024]). Such robust evidence calls for the development of theoretical models to shed light on the implications of disclosure regulation on innovation incentives and its welfare implications.…”

A comparison of direct listings andIPOs

“…Second, we test whether our results for RQ2 vary with the overall quality of listing firms' industry information environment. Intra‐industry information spillovers play an important role in capital markets generally and studies also show that peer firms' financial disclosures play a key role in shaping a firms' overall industry information environment (Glaeser & Omartian, 2022).…”

“…A key alternative source of information investors use in this setting is public disclosures made by industry peer firms (e.g., see Bourveau et al, 2022). Higher quality peer firm disclosures result in a richer overall industry information environment (Glaeser & Omartian, 2022), which can help investors value newly listed firms.…”

“…Second, we test whether our results for RQ2 vary with the overall quality of listing firms' industry information environment. Intra-industry information spillovers play an important role in capital markets generally and studies also show that peer firms' financial disclosures play a key role in shaping a firms' overall industry information environment (Glaeser & Omartian, 2022). 24 Importantly, evidence also shows that peer firms' disclosures can act as a substitute source of information when a firm's own disclosures are lacking (Arif & De George, 2020), including for IPO firms (Shroff et al, 2017).…”

Corporate R&D Investments Following Competitors’ Voluntary Disclosures: Evidence from the Drug Development Process

“…My study is most closely related to the emerging literature on the real effects of peer firm disclosure. Several recent studies examine the real effects of firms’ financial statements on peer firms’ investments, market entry, and innovation (Badertscher, Shroff, and White [2013], Beatty, Liao, and Yu [2013], Li [2016], Durnev and Mangen [2020], Cho and Muslu [2021], Breuer, Leuz, and Vanhaverbeke [2022], Glaeser and Omartian [2022], Zou [2022], Chen et al. [2023], Kim and Valentine [2023]).…”