Essays on the Regulation of Digital Financial Reporting

Abstract

This thesis examines key aspects of the regulation of digital financial reporting. By investigating how EU regulatory initiatives shape the digitalization and dissemination of financial reporting, the thesis addresses two overreaching research questions: (1) Are the regulations implemented by the EU for digital financial reporting suitable for effectively achieving their intended consequences? And (2) does the regulatory setting in digital financial reporting in the EU impact firms’ individual costs and benefits, affecting the cost-benefit trade-off of early ESEF adoption?

The first study (Section 2) investigates the timeliness of centralized electronic dissemination of financial reports in the EU, a key component of EU single market integration. Timeliness is a regulatory objective and has economic significance because it affects information processing costs. This topic is particularly salient as ESAP, once operational in mid-2027, will rely on national repositories, so-called Officially Appointed Mechanisms (OAMs), as its primary data source (ESAP, Art. 5). Consequently, differences in the setup and processes of OAMs may generate heterogeneity, potentially limiting ESAP’s ability to achieve its intended goal of timely dissemination.

The second and third studies (Section 3 and 4) investigate the (expected) economic effects of ESEF. The ESEF mandate aims to enhance the usability of financial statements by enabling automated data extraction and analysis (ESEF, Rec. 4). It remains an open question whether, and to what extent, the change to the ESEF reporting format impacts capital market liquidity and firms’ information environments. Moreover, the Covid pandemic resulted in a one-year postponement of mandatory ESEF adoption in 23 of 27 member states (European Parliament, 2021). This regulatory modification created a setting to compare early adopting and late adopting countries and to analyze firm-, industry-, and country-level characteristics associated with early adoption of firms and its associated cost-benefit tradeoffs.

Taken together, the three studies shed light on how digital financial reporting regulations influence the dissemination, accessibility, and processing of financial information in the EU. The next section provides a broader overview of digital financial reporting and the regulatory environment in which these studies are embedded.