Direct and Indirect Effects of Transparency Regulation

We examine the direct and indirect effects of transparency regulation on economic activity. Using two distinct sources of regulatory variation—the varying extent of financial-reporting requirements and the staggered introduction of electronic business registers in Europe—, we find that direct exposure to transparency regulation tends to hurt focal firms’ economic activity (e.g., production and employment). By contrast, we find that indirect exposure to transparency regulation imposed on other related firms tends to help focal firms’ economic activity. In terms of relative magnitudes, we find that the negative direct and positive indirect effects tend to be of similar size, almost perfectly offsetting each other. Collectively, our evidence suggests that transparency regulation appears to primarily reallocate economic activity from more toward less regulated markets rather than help or hurt aggregate economic activity.