Disclosure Incentives and Data Availability for Private Firms: Implications for Comparisons of Public and Private Firm Financial Reporting Quality

49 Pages Posted: 20 Mar 2016 Last revised: 27 Oct 2016

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: October 26, 2016

Abstract

For private firms, public disclosure of financial information is often at management’s discretion. We argue that differences in incentives to publicly disclose result in differences in data availability for private firms, which in turn can affect the conclusions of studies that rely on private firm data. We examine this point in the context of the literature documenting mixed evidence on differences between public and private firm financial reporting quality (FRQ). Using data surrounding a 2006 regulation change that dramatically strengthened enforcement of public disclosure requirements for German private firms, we compare the FRQ of three groups of firms: Private firms that voluntarily disclose financial statement information (“private voluntary” firms), private firms that disclose only due to effective enforcement of mandatory disclosure requirements (“private mandatory” firms), and public firms that are all subject to mandatory disclosure requirements. We find little or no evidence that private voluntary firms have different FRQ from public firms. However, we find consistent evidence that private mandatory firms have lower FRQ than both public firms and private voluntary firms. The results suggest that understanding the effect of disclosure incentives on private firm data availability is critical to interpreting the results of studies that rely on private firm data.

Keywords: disclosure incentives, public and private firms, financial reporting quality, enforcement

JEL Classification: L20, L51, M41

Suggested Citation

Bernard, Darren and Burgstahler, David C. and Kaya, Devrimi, Disclosure Incentives and Data Availability for Private Firms: Implications for Comparisons of Public and Private Firm Financial Reporting Quality (October 26, 2016). Available at SSRN: https://ssrn.com/abstract=2749747 or http://dx.doi.org/10.2139/ssrn.2749747

Darren Bernard (Contact Author)

University of Washington - Department of Accounting ( email )

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

David C. Burgstahler

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
817
Abstract Views
2,919
rank
38,465
PlumX Metrics