Financial Reporting Quality and International Trade

Abstract

This paper examines the effects of financial reporting quality on international trade. First, I conduct country-sector-level analyses and find that a one standard deviation increase in financial reporting quality in a country is associated with increases in manufacturing exports and imports of 4.2 and 3.5 percent, respectively. Second, I exploit a reporting regulation change in China and use administrative firm-level international trade data to conduct differences-in-differences analyses. The results show that treated firms export 15.1 percent more after the financial reporting reform. They also export to more countries and export more types of goods after the change. I provide evidence for two potential mechanisms for these effects: (i) that improved financial reporting decreases information asymmetry between trade partners and (ii) that it facilitates firms raising external capital. This paper extends understanding of the real economic effects of financial disclosure and provides a potential link between information transparency and global economic growth.