We investigate the impact of reporting regulation on corporate innovation activity.

Exploiting thresholds in Europe’s regulation and a major enforcement reform in

Germany, we find that forcing a greater share of firms to publicly disclose their

financial statements reduces firms’ innovative activities at the industry level. At the

same time, it increases firms’ reliance on patenting to protect their innovations, to the

extent they continue innovating. Our evidence is consistent with reporting mandates

having significant real effects by imposing proprietary costs on innovative firms, which

diminishes their incentives to engage in innovative activities. Importantly, we examine

and find that this decline in innovative activity is not fully compensated by positive

information spillovers (e.g., to competitors, suppliers, and customers) within

industries. Thus, our evidence implies that proprietary costs induced by reporting

mandates are important consideration for regulators and policy makers.