Stakeholder Demand for Accounting Quality and Economic Usefulness of Accounting in U.S. Private Firms

38 Pages Posted: 25 Jun 2014 Last revised: 22 Sep 2016

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Wayne B. Thomas

University of Oklahoma

Dushyantkumar Vyas

University of Toronto - Rotman School of Management; University of Toronto at Mississauga

Date Written: September 21, 2016

Abstract

For some privately-held firms, the costs of providing high-quality accrual-based financial statements may outweigh the benefits of accommodating the demands of their stakeholders who may rely more on cash flows or have direct access to management. For other private firms, greater stakeholder demand for their financial information necessitates them providing higher-quality accounting. Using a large sample of U.S. private firms, we first confirm that accrual quality in private firms is associated with the ability of accruals to predict future cash flows. Next, we predict and find that accrual quality increases with the demand for monitoring by equity investors, lenders, and suppliers. Overall, our evidence suggests that accrual quality of private U.S. firms is useful, has economic consequences, and varies predictably with certain firm characteristics.

Keywords: private firms, accrual quality, stakeholders, demand factors, cash-flow prediction

JEL Classification: M41, G30, G31, G32, G34, M10

Suggested Citation

Hope, Ole-Kristian and Thomas, Wayne B. and Vyas, Dushyantkumar, Stakeholder Demand for Accounting Quality and Economic Usefulness of Accounting in U.S. Private Firms (September 21, 2016). Journal of Accounting and Public Policy, Forthcoming; Rotman School of Management Working Paper No. 2457956. Available at SSRN: https://ssrn.com/abstract=2457956 or http://dx.doi.org/10.2139/ssrn.2457956

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Wayne B. Thomas

University of Oklahoma ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

Dushyantkumar Vyas

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Mississauga ( email )

3359 Mississauga Rd N.
Mississauga, Ontario L5L 1C6
Canada

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