Firm transparency and innovation: international evidence
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[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] Transparency can provide financing benefits to innovation by reducing financial frictions, and it can also entail proprietary costs by revealing information to competitors. Using a large sample of firms from 29 countries, I find a robust, positive association between firm transparency and innovation. This positive relation is more pronounced in environments in which proprietary costs are lower (i.e., countries with stronger legal system over property rights), financing benefits are higher (i.e., countries with more developed financial markets, firms with greater financial constraints) or with a combination of all these factors. Tests using 2SLS regression as well as a DiD approach around mandatory IFRS adoption indicate that endogeneity is unlikely to be driving my findings. Overall, this study highlights an unexplored firm-specific channel linking transparency to innovation key to economic growth, and shows that transparency supports a higher level of innovation by improving firm access to lower cost external financing.