What Happens if Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt
37 Pages Posted: 9 Nov 2017 Last revised: 30 Apr 2019
Date Written: April 28, 2019
We examine the effect of private accounting information becoming public on small firms’ access to bank debt. Both proprietary cost of disclosure and relationship banking have contributed to German private firms’ traditional non-disclosure of financial statements. We employ a regulatory change, which increased enforcement and established severe fines for firms that do not publicly disclose financial statements, as a quasi-natural experiment. We find that small firms’ access to bank debt has significantly increased after the disclosure shock. With our study based on a novel dataset in a non-voluntary private firm setting, we contribute to the discussion on private and public information in debt contracting.
Keywords: entrepreneurial finance, mandatory public disclosure, access to bank debt, private firms
JEL Classification: D82, G14, M41
Suggested Citation: Suggested Citation