Essays on financial reporting transparency

This thesis investigates how reporting transparency and disclosure regulation shape economic behavior across three studies. While greater transparency can reduce information frictions, it creates incentives for firms to adjust their reporting and real decisions in response to regulations (Leuz & Wysocki, 2016). The first chapter focuses on the economics of disclosure and connects private-firm transparency to current regulatory debates about costs and benefits. Exploiting the EU micro-entity disclosure regime, it shows that simplifying reporting – and, in some jurisdictions, limiting public access to micro entity accounts – raises entrepreneurs’ propensity to incorporate limited-liability firms. The effects are strongest where proprietary disclosure costs are higher, showing how compliance and proprietary considerations steer organizational form and market entry. The second chapter analyzes the role of accounting flexibility during crises, exploiting a relief mechanism that allowed firms to suspend depreciation and amortization charges during COVID-19. Low-transparency firms adopt the relief more aggressively – even when performance is not impaired – securing cheaper credit and higher borrowing while curbing investment. The evidence highlights how well-intended flexibility can be exploited opportunistically, underscoring the role of eligibility criteria and enforcement in aligning policy with real outcomes. The third chapter examines whether external information shocks from activist short-selling alleviate or enhance information frictions within industry. Auditors of non-targeted industry peers increase going-concern opinions following campaigns, particularly for clients with weak information environment. The findings suggest precautionary shifts in audit judgments that propagate beyond targeted firms, rather than actual monitoring. In conclusion, the dissertation provides nuanced evidence on the real effects of transparency rules, crisis-time reporting relief, and information shocks. It offers actionable implications for regulatory design – balancing transparency benefits with proprietary and compliance costs – and for auditors and policymakers concerned with externalities in private-firm settings.