What Happens If Private Accounting Information Becomes Public? The Effect of Small Firms’ Mandatory Public Disclosure on Their Access to Bank Debt

45 Pages Posted: 9 Nov 2017 Last revised: 26 Mar 2018

Snjezana Deno

University of Cologne

Thomas R. Loy

University of Bayreuth - Business Administration

Carsten Homburg

University of Cologne

Date Written: March 22, 2018

Abstract

This paper exhibits the effect of private accounting information becoming public on small private firms’ access to bank debt. Both, proprietary cost of disclosure as well as relationship banking seem to historically have contributed to German private firms not voluntarily disclosing their financial statements. Employing a regulatory change, which increased enforcement and initially established fines for firms that do not publicly disclose their financial statements, we hypothesize and find that small private firms’ access to bank debt significantly increases. Results of this quasi-natural experiment, and our novel dataset in a non-voluntary private firm setting, contribute to the discussion revolving around the nexus between private and public information in debt contracting. As we focus exclusively on small private firms, our findings with respect to disclosure are unbiased by confounding effects of mandatory financial statement audits.

Keywords: mandatory public disclosure, access to bank debt, private firms

JEL Classification: D82, G14, M41

Suggested Citation

Deno, Snjezana and Loy, Thomas R. and Homburg, Carsten, What Happens If Private Accounting Information Becomes Public? The Effect of Small Firms’ Mandatory Public Disclosure on Their Access to Bank Debt (March 22, 2018). Available at SSRN: https://ssrn.com/abstract=3066049 or http://dx.doi.org/10.2139/ssrn.3066049

Snjezana Deno

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Thomas R. Loy (Contact Author)

University of Bayreuth - Business Administration ( email )

Universitätsstr. 30
Bayreuth, 95447
Germany

HOME PAGE: http://www.wp.uni-bayreuth.de

Carsten Homburg

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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