Size Management by European Private Firms to Minimize Proprietary Costs of Disclosure
54 Pages Posted: 22 Aug 2014 Last revised: 21 Oct 2018
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: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Value of Verification in Debt Financing: Evidence from Private U.S. Firms
-
Voluntary Audits and the Cost of Debt Capital for Privately Held Firms: Korean Evidence
By Jeong-bon Kim, Dan A. Simunic, ...
-
Voluntary Audit and the Cost of Debt Capital for Privately Held Firms: Korean Evidence
By Dan A. Simunic, Jeong-bon Kim, ...
-
What Do We Learn from Two New Accounting-Based Stock Market Anomalies?
By Sudipta Basu
-
Do Private Company Targets that Hire Big 4 Auditors Receive Higher Proceeds?
By Gus De Franco, Ilanit Gavious, ...
-
By Gavin Cassar, Ken Cavalluzzo, ...
-
Selective Auditor Rotation and Earnings Management: Evidence from Korea
By Jeong-bon Kim, Chung-ki Min, ...