The Impact of Financial Reporting Quality on Debt Maturity: The Case of Private Firms

Accounting and Business Research, Forthcoming

44 Pages Posted: 26 Jan 2018

See all articles by Michiel De Meyere

Michiel De Meyere

Ghent University-Universiteit Gent - Department of Accountancy, Corporate Finance and Taxation

Heidi Vander Bauwhede

Ghent University - Faculty of Economics and Business Administration

Philippe Van Cauwenberge

Ghent University - Department of Accountancy and Corporate Finance

Date Written: January 8, 2018

Abstract

We examine whether the debt maturity structure of privately held firms is associated with the quality of their earnings numbers. We argue that earnings numbers that are better able to predict future cash flows lower information asymmetry between privately held firms and their creditors, improving privately held firms’ access to long-term debt. Furthermore, we examine whether the relationship between privately held firms’ earnings quality and their debt maturity differs between small and medium-sized enterprises (SMEs) and larger privately held firms. Using detailed financial statement information from a sample of privately held Belgian firms, we find that earnings quality is positively associated with the likelihood of having long-term debt and with the proportion of long-term debt in total debt. Further, we report evidence that these associations are more pronounced for SMEs than for larger privately held firms, which is consistent with smaller firms entailing more fundamental risk for creditors.

Keywords: Financial reporting quality, Debt maturity, Privately held firms, Debt

JEL Classification: G21, G32, M41

Suggested Citation

De Meyere, Michiel and Vander Bauwhede, Heidi and Van Cauwenberge, Philippe, The Impact of Financial Reporting Quality on Debt Maturity: The Case of Private Firms (January 8, 2018). Accounting and Business Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3104613

Michiel De Meyere

Ghent University-Universiteit Gent - Department of Accountancy, Corporate Finance and Taxation ( email )

Ghent
Belgium

Heidi Vander Bauwhede (Contact Author)

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

Philippe Van Cauwenberge

Ghent University - Department of Accountancy and Corporate Finance ( email )

Bedrijfsfinanciering (RUG)
Kuiperskaai 55 E
Ghent, B-9000
Belgium

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