Abstract

http://ssrn.com/abstract=2373498
 


 



Which Private Firms Follow GAAP and Why?


Petro Lisowsky


University of Illinois at Urbana-Champaign - Department of Accountancy; Norwegian Center for Taxation; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Michael Minnis


University of Chicago - Booth School of Business

September 11, 2015

Chicago Booth Research Paper No. 14-01

Abstract:     
We provide new evidence on the production of audited GAAP financial statements by large U.S. privately held firms. We find that over 60% of these firms, which control $4 trillion of assets, do not produce audited GAAP financial statements. Using across industry, within industry, and within firm tests over time, our analyses reveal that several important characteristics — such as profitability, firm age, growth, ownership changes, and presence of intangibles — partially explain this variation. These findings are consistent with financial statements reducing information asymmetry and serving a stewardship role. However, economically substantial variation remains unexplained by traditional variables. Our findings suggest that incomplete contracting and alternative mechanisms, such as relationships and tangible assets, are useful alternatives to producing audited GAAP financial statements, even for large firms. Our study informs researchers, standard setters, and regulators on the actual use of audited GAAP financial statements in the broader U.S. economy and raises additional questions for future research.

Number of Pages in PDF File: 66

Keywords: audit, private firms, accounting choice, financial reporting, capital formation

JEL Classification: M41, M44, M49


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Date posted: January 9, 2014 ; Last revised: September 12, 2015

Suggested Citation

Lisowsky, Petro and Minnis, Michael, Which Private Firms Follow GAAP and Why? (September 11, 2015). Chicago Booth Research Paper No. 14-01. Available at SSRN: http://ssrn.com/abstract=2373498 or http://dx.doi.org/10.2139/ssrn.2373498

Contact Information

Petro Lisowsky
University of Illinois at Urbana-Champaign - Department of Accountancy ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Norwegian Center for Taxation ( email )
Helleveien 30
Bergen, Bergen 5045
Norway
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
Michael Minnis (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 South Woodlawn Avenue
Chicago, IL 60637
United States
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