Different Approaches to Corporate Reporting Regulation

In the paper, Different Approaches to Corporate Reporting Regulation: How Jurisdictions Differ and Why, which was recently made publicly available on SSRN, I discuss differences in countries’ approaches to reporting regulation and explore reasons why they exist in the first place and why they are likely to persist. After delineating various regulatory choices and discussing the tradeoffs associated with these choices, I provide a basic framework based on the notion of institutional complementarities that helps us understand existing differences in corporate reporting and other regulation. The paper also provides descriptive and stylized evidence on regulatory and institutional differences across countries. It highlights that there are robust institutional clusters around the world.

A key message of this paper is that these clusters are likely to persist in the foreseeable future given the complementarities among countries’ institutions. Another key message is that there are substantial enforcement differences around the world. An important implication of both messages is that reporting practices are unlikely to converge globally, despite widespread IFRS adoption. Nevertheless, there appears to be a strong demand for convergence in reporting practices for globally operating firms. Thus, I propose a different way forward that does not require convergence of regulatory approaches across countries. The proposal is to create a “Global Player Segment” (GPS), in which firms play by the same reporting rules (i.e., IFRS), face the same enforcement and are likely to have similar incentives for transparent reporting. The GPS could be created and operated by IOSCO or other supra-national institutions. The core ideas behind this segment are twofold. First, it would provide a comparable layer of enforcement for participating firms. Second, it would exploit the forces of self-selection by firms into the segment, which in turn would align participating firms’ reporting incentives. That is, the segment should be attractive to globally operating firms that have desire to credibly signal that they are serious about their commitment to transparency.

I recognize that there are political obstacles to the implementation of the GPS. But it nevertheless provides a useful template. Even if the GPS proposal is not successful, it turns the spotlight on the shortcomings of a convergence approach that relies primarily on IFRS adoption, in the face of major institutional and enforcement differences around the world. Thus, the hope is that this proposal at least contributes to a more rigorous debate about what it takes to achieve global reporting convergence.

The full paper is available for download here.