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Novel Design and Financial Reporting Quality in A Globalized Economy

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Document pages: 48 pages

Abstract: In this paper, we use the prestigious iF design award to measure corporate product design novelty and examine how it is influenced by information quality. Using the mandatory adoption of International Financial Reporting Standards (IFRS) in 2005 as a substantial increase in information quality and conducting a difference-in-differences analysis, we find that a firm’s mandatory adoption of IFRS is positively related to its likelihood of winning the prestigious iF design award. Examining two mechanisms through which the IFRS mandate affects product design novelty, we find that, after mandatory IFRS adoption, firms attract more international institutional investors who can better monitor and advise product development and design in global supply chains. In addition, we document that the effect of the IFRS mandate is more pronounced for a firm with expanded international sales that benefits much more from global markets. Overall, this study highlights the real effect of high-quality information environments on product design in a global setting.

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