Discussion of the Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms
33 Pages Posted: 29 Jan 2011 Last revised: 16 Nov 2011
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Discussion of the Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms
Discussion of the Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms
Date Written: January 17, 2011
Abstract
I discuss Minnis [2010] in the context of the broader literature on private firm financing. In particular, I focus on the unique features of the private firm setting and how it affects research design and inference. I detail the alternative information sources available to debt financiers of private firms that may limit the role of auditors and firm financial statements. I review research in the private firm setting that documents the heightened importance of many omitted correlated variables such as the loan characteristics, contractual terms, and the characteristics of the entrepreneur that affect cost of debt. In evaluating the validity of Minnis’s [2010] hypotheses and econometric methods, I report findings from a representative sample of private firms provided by the Federal Reserve Board’s Survey of Small Business Finances.
Keywords: Auditing, Cost of Capital, Earnings Persistence, Private Firms
JEL Classification: D82, G20, L14, M42
Suggested Citation: Suggested Citation
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