What Happens if Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt

Forthcoming in Entrepreneurship Theory and Practice (ETP)

38 Pages Posted: 9 Nov 2017 Last revised: 16 Aug 2019

See all articles by Snjezana Deno

Snjezana Deno

University of Cologne

Thomas R. Loy

University of Bremen

Carsten Homburg

University of Cologne

Date Written: August 15, 2019

Abstract

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

Deno, Snjezana and Loy, Thomas R. and Homburg, Carsten, What Happens if Private Accounting Information Becomes Public? Small Firms’ Access to Bank Debt (August 15, 2019). Forthcoming in Entrepreneurship Theory and Practice (ETP). 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 Bremen ( email )

Universitaetsallee GW I
Bremen, D-28334
Germany

Carsten Homburg

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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