Measurement Matters: Financial Reporting and Productivity
December 2025
Working Paper Number:
CES-25-72
Abstract
We examine how differences in financial reporting practices shape firm productivity. Leveraging new audit questions in the U.S. Census Bureau's 2021 Management and Organizational Practices Survey (MOPS), and complementary tax return data from the Internal Revenue Service (IRS) and detailed financial records from Sageworks, we find that (i) variation in reporting quality explains 10-20 percent of intra-industry total factor productivity dispersion, and (ii) evidence of complementarity between the effects of financial audits and management practices driving firm productivity. We then examine the underlying mechanisms. First, audits function as a managerial technology, improving the precision of internal information and raising efficiency, with stronger effects in competitive, low-margin industries and among younger firms. Second, exploiting cross-state variation in tax incentives, we show that audits constrain underreporting and mitigate the downward bias in measured productivity. Together, these results highlight the underrated importance of financial reporting quality driving firm productivity.
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:
productive,
payroll,
report,
disclosure,
financial,
efficiency,
accounting,
reporting,
revenue,
gdp,
record,
tax,
irs,
taxable
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Annual Survey of Manufactures,
Internal Revenue Service,
Total Factor Productivity,
National Bureau of Economic Research,
Securities and Exchange Commission,
Cobb-Douglas,
Michigan Institute for Teaching and Research in Economics,
University of California Los Angeles,
Economic Census,
Wholesale Trade,
North American Industry Classification System,
Management and Organizational Practices Survey
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