Financial reporting rules stifle corporate innovation, favoring large firms.
Financial reporting regulations can stifle corporate innovation by making firms disclose their financial statements. This discourages innovative activities by increasing costs for innovative firms, reducing their motivation to innovate. Even though sharing information can benefit others in the industry, it doesn't fully offset the negative impact on innovation. Instead, it tends to concentrate innovation among a few large firms. In summary, reporting regulations can have significant effects on both the overall level of innovation and how it is distributed within industries.