Size Management by European Private Firms to Minimize Proprietary Costs of Disclosure

54 Pages Posted: 22 Aug 2014 Last revised: 21 Oct 2018

See all articles by Darren Bernard

Darren Bernard

University of Washington - Department of Accounting

David Burgstahler

University of Washington

Devrimi Kaya

Ruhr University of Bochum

Date Written: February 27, 2018

Abstract

We examine size management by European private firms for which disclosure requirements increase at size thresholds. Our estimates suggest at least 8% of firms near thresholds that impose income statement disclosure manage size downward, and the average firm that manages size sacrifices more than 6% of its assets. We find that multiple determinants of proprietary costs predict this behavior, and that size management to avoid mandatory audits, which are similarly imposed at size thresholds, is of comparable magnitude. Our results triangulate the economic significance of proprietary costs in a setting largely without confounding capital market, agency, or compliance costs.

Keywords: proprietary costs, disclosure, mandatory audit, size management, private firms

JEL Classification: L10, L51, M41

Suggested Citation

Bernard, Darren and Burgstahler, David C. and Kaya, Devrimi, Size Management by European Private Firms to Minimize Proprietary Costs of Disclosure (February 27, 2018). Journal of Accounting & Economics 66 (2018) 94-122, Available at SSRN: https://ssrn.com/abstract=2484161 or http://dx.doi.org/10.2139/ssrn.2484161

Darren Bernard

University of Washington - Department of Accounting ( email )

PACCAR Hall
4273 E Stevens Way NE
Seattle, WA 98195-3200
United States

David C. Burgstahler (Contact Author)

University of Washington ( email )

555 Paccar Hall, Box 353226
Seattle, WA 98195-3226
United States
206-543-6316 (Phone)
206-685-9392 (Fax)

Devrimi Kaya

Ruhr University of Bochum ( email )

Faculty of Management and Economics
Bochum, 44801
Germany

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