Is the risk of product market predation a cost of disclosure?

Bernard, Darren

doi:10.1016/j.jacceco.2016.07.001

Cited by 150 publications

(159 citation statements)

References 64 publications

(94 reference statements)

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“…Consider a recent example. Bernard (2016) hypothesizes that information about a firm's financing constraints is proprietary in nature because this information can be used by competitors to prey on weaker firms. If information about a rival's financings constraints is public, cash rich firms can force economically efficient but financially constrained rivals out of business by lowering industry profits and reducing their rivals' cash flows.…”

Section: Information Asymmetry Between Regulators and Companiesmentioning

confidence: 99%

“…Taking the evidence in Bernard (2016) as given, Shroff (2016) discusses that financially constrained firms then have to make a difficult choice: (i) either take on leverage, which can facilitate faster growth but at the same time expose the firm to a higher risk of predation by cashrich rivals, or (ii) just keep leverage ratios and financing constraints low even if that means settling for a slower growth rate. Insofar as regulators are less informed than firms about the costs of financial reporting and disclosure to firms, it is plausible that financial reporting regulation can be welfare decreasing as the above example suggests.…”

Section: Information Asymmetry Between Regulators and Companiesmentioning

confidence: 99%

“…Perhaps not surprisingly, we find standard setters view the benefits of public disclosure and auditing requirements as exceeding the costs more often than firms do. One of the firms' most important concerns about public disclosure is their competitors' ability to observe not only their financial performance (e.g., Botosan and Stanford 2005;Berger and Hann 2007;Dedman and Lennox 2009), but also the extent of their financial constraints (e.g., Bernard 2016).…”

Section: Introductionmentioning

confidence: 99%

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Why regulate private firm disclosure and auditing?

Minnis

Shroff

2017

Accounting and Business Research

166

122

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Private firms face differing financial disclosure and auditing regulations around the world. In the United States and Canada, for example, private firms are generally neither required to disclose their financial results nor have their financial statements audited. By contrast, many firms with limited liability in most other countries are required to file at least some financial information publicly and are also required to have their financial statements audited. This paper discusses and analyzes the reasons for differential financial reporting regulation of private firms. We first discuss various definitions of a private firm. Next, we examine theoretical arguments for regulating the financial reporting of these firms, particularly related to public disclosure and auditing. We then provide new survey based evidence of firms' and standard setters' views of regulation. We conclude by identifying future research opportunities.

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Section: Information Asymmetry Between Regulators and Companiesmentioning

confidence: 99%

Section: Information Asymmetry Between Regulators and Companiesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Why regulate private firm disclosure and auditing?

Minnis

Shroff

2017

Accounting and Business Research

166

122

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“…Bernard et al (2018) examine small and medium-sized firms' disclosures in European countries where disclosure is mandatory and find that a substantial number of firms attempt to evade the requirements by "managing" their size measures to keep them below the relevant legal thresholds. Profitability, growth, and leverage are all associated with avoidance of the size thresholds, suggesting that the avoidance is motivated by proprietary disclosure costs (Bernard 2016). Finally, Minnis and Shroff (2017) conducted an online survey of European firms with regard to the perceived benefits and costs of the public disclosure of financial statements.…”

Section: Related Literaturementioning

confidence: 99%

“…The CFOs of these two firms explained that disclosure of income statements would put an end to the high margins that their companies currently enjoyed in their respective niche markets. Furthermore, the CFO of the small company explained that he closely watches the size thresholds and would be prepared to take steps to prevent the company from hitting them (on this point, see Bernard 2016 andBreuer et al 2019):…”

Section: Public Disclosure Of Financial Statementsmentioning

confidence: 99%

Financial Reporting in Non-listed Family Firms: Insights from Interviews with CFOs

Glaum

2020

Schmalenbach Bus Rev

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Analysing 20 interviews with CFOs of German non-listed family firms, I report how the firms' financial reporting is organised, who are the financial statement addressees, how the CFOs define accounting quality, whether they manage earnings, and how owner families influence reporting. I also discuss the firms' costs of reporting and disclosure. Most CFOs see the requirement to disclose financial statements as a burden. They react by disclosing statements as late as possible and by providing only the minimum content necessary. As regards accounting quality, the CFOs value formal correctness, but also sustainability, persistence, and conservative estimation of net income. Most CFOs engage in earnings management, above all to achieve a positive trend in net income, in some cases also to comply with debt covenants. The influence of the owner families differs; however, in most cases the family at least "sets the tone" for the reporting. On average, the direct costs of accounting and auditing in my sample firms amount to about 1% of revenues. According to the CFOs, public disclosure does not result in material indirect costs, and most CFOs would not change much if the requirements for reporting and disclosure were abolished. These findings add to our understanding of private firm financial reporting and suggest several directions for future research.K 226 Schmalenbach Bus Rev (2020) 72:225-270

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Pilot CEOs and management earnings forecasts

Gao

Shi

2022

J Corp Accounting Finance

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This study examines the association between pilot CEOs and management earnings forecasts. We find that firms with pilot CEOs are associated with a lower likelihood of issuing voluntary earnings forecasts, suggesting that pilot CEOs are less likely to release private information through earnings forecast. We further investigate the association between pilot CEOs and management forecast characteristics such as forecast accuracy, bias, and precision. Our empirical results reveal that firms with a pilot CEO offer more accurate and more conservative forecasts than firms with a non-pilot CEO. This evidence is consistent with our argument that pilot CEOs establish superior situation awareness talents and develop conservative predicting attitudes from their flying experience. Overall, our study sheds light on how CEO's off-the-job experience affects management earnings forecast behavior.

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Is the risk of product market predation a cost of disclosure?

Cited by 150 publications

References 64 publications

Why regulate private firm disclosure and auditing?

Why regulate private firm disclosure and auditing?

Financial Reporting in Non-listed Family Firms: Insights from Interviews with CFOs

Pilot CEOs and management earnings forecasts

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