The Demand for Financial Statements in an Unregulated Environment: an Examination of the Production and Use of Financial Statements By Privately-Held Small Businesses

49 Pages Posted: 2 Feb 2005 Last revised: 14 May 2014

See all articles by Kristian D. Allee

Kristian D. Allee

University of Arkansas - Department of Accounting

Teri Lombardi Yohn

Indiana University - Kelley School of Business - Department of Accounting

Date Written: December 2007

Abstract

We examine the financial reporting practices of small privately-held businesses that are not subject to SEC regulation. Specifically, we determine the factors associated with the production and use of financial statements for firms who have discretion in the preparation of financial statements and who do not face the demands of public equity markets. In addition, for firms that prepare financial statements, we determine the factors associated with the sophistication of the financial statements in terms of whether the financials are compiled, reviewed, and/or audited by a professional accountant and whether the firm produces accrual-based financial statements. Finally, we examine the potential benefits afforded firms producing financial statements, having audited financial statements, and having accrual-based financial statements. We find that firms with audited financial statements benefit in the form of greater access to credit and that firms with accrual-based financial statements benefit in the form of a lower cost of credit.

Keywords: discretionary use and sophistication of financial statements, privately-held small businesses

JEL Classification: M41, G32, G12, G21

Suggested Citation

Allee, Kristian D. and Yohn, Teri Lombardi, The Demand for Financial Statements in an Unregulated Environment: an Examination of the Production and Use of Financial Statements By Privately-Held Small Businesses (December 2007). Available at SSRN: https://ssrn.com/abstract=647721 or http://dx.doi.org/10.2139/ssrn.647721

Kristian D. Allee

University of Arkansas - Department of Accounting ( email )

University of Arkansas
Business Building 458
Fayetteville, AR 72701
United States
479-575-5227 (Phone)

Teri Lombardi Yohn (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
(812) 855-0430 (Phone)

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