Different approaches to corporate reporting regulation: How jurisdictions differ and why

Abstract

This paper discusses differences in countries’ approaches to reporting regulation and explores the reasons why they exist in the first place as well as why they are likely to persist. I first delineate various regulatory choices and discuss the trade‐offs associated with these choices. I also provide a framework that can explain differences in corporate reporting regulation. Next, I present descriptive and stylised evidence on regulatory and institutional differences across countries. There are robust institutional clusters around the world. I discuss that these clusters are likely to persist given the complementarities among countries’ institutions. An important implication of this finding is that reporting practices are unlikely to converge globally, despite efforts to harmonise reporting standards. Convergence of reporting practices is also unlikely due to persistent enforcement differences around the world. Given an ostensibly strong demand for convergence in reporting practices for globally operating firms, I propose a different way forward that does not require convergence of reporting regulation and enforcement across countries. The idea is to create a ‘global player segment’, in which member firms play by the same reporting rules and face the same enforcement. Such a segment could be created and administered by a supra‐national body like IOSCO.

Keywords::

• accounting
• regulation
• IFRS
• US GAAP
• SEC
• standard‐setting, mandatory disclosure
• political economy

Notes

The author is the J. Sondheimer Professor of International Economics, Finance and Accounting at the University of Chicago Booth School of Business, a research associate at the National Bureau of Economic Research, Cambridge, MA, and at the European Corporate Governance Institute, Brussels, and a Fellow of the Wharton Financial Institutions Center, Philadelphia, PA.

This study was prepared for the ICAEW ‘Information for Better Markets’ Conference in London in December 2009. The author thanks Hans Christensen, Luzi Hail, Arnt Verriest, Ken Wild, and Peter Wysocki for useful discussions and comments. He also thanks the Initiative on Global Markets at Chicago Booth for research support as well as Denis Echtchenko for providing excellent research assistance, and is grateful to an anonymous reviewer for constructive comments.

Correspondence should be addressed to: Professor Christian Leuz, The University of Chicago Booth School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637–1610, USA. E‐mail: [email protected].