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
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
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