Financial Transparency of Private Firms: Evidence from a Randomized Field Experiment

65 Pages Posted: 3 Dec 2018

See all articles by Joachim Gassen

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics; Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE)

Maximilian Muhn

Humboldt University of Berlin

Date Written: October 2018

Abstract

This paper examines why firms choose to be financially transparent or opaque by conducting a field experiment with more than 25,000 private firms in Germany. We inform a randomly chosen set of treatment firms about a disclosure option that allows eligible firms to restrict access to their otherwise publicly available financial statements. We also vary the messaging of these emails in subtle ways to induce experimental variation in the probability that firms take transacting (capital providers or customers and suppliers) versus non transacting stakeholders (competitors or general interest parties) into consideration when making their filing decision. Using administrative data uncovering each firm’s actual filing decision, we find that treated firms are 15% more likely to restrict access to their financial statements. This intention-to-treat effect is persistent and concentrated among firms that should derive lower net benefits from disclosure (smaller, more mature firms in less capital intensive industries). These findings indicate that informational constraints affect firms’ disclosure practice. Additionally, we show that the treatment effect is almost 40% larger for firms that have a higher, exogenously induced, probability of considering non-transacting stakeholders when making their disclosure decision.

Keywords: disclosure, financial transparency, field experiment, private firms, informational costs, transacting stakeholders, competition, privacy, capital providers, customer and supplier

JEL Classification: G30, G32, G38, K22, K23, M41, M48

Suggested Citation

Gassen, Joachim and Muhn, Maximilian, Financial Transparency of Private Firms: Evidence from a Randomized Field Experiment (October 2018). Available at SSRN: https://ssrn.com/abstract=3290710 or http://dx.doi.org/10.2139/ssrn.3290710

Joachim Gassen

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany
+49 30 2093 5764 (Phone)
+49 30 2093 5670 (Fax)

Humboldt University of Berlin - Center for Applied Statistics and Economics (CASE) ( email )

Spandauer Strasse 1
Berlin, D-10178
Germany

Maximilian Muhn (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

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