The silent majority: private U.S. firms and the market for financial reporting
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Citation (published version)Petro Lisowsky, Michael Minnis. "The Silent Majority: Private U.S. Firms and the Market for Financial Reporting."
This study examines the financial reporting choices of medium-to-large private U.S. firms. Using a comprehensive panel of tax returns from private U.S. firms with assets of $10 million or more, we find that nearly two-thirds of these firms do not produce audited GAAP financial statements. Using an agency theory framework to motivate our tests, we find that size, ownership dispersion, external debt levels, and trade credit are positively associated with the choice to produce audited GAAP financial statements, while asset tangibility and internal debt are negatively related to this choice. The results also reveal that young, high-growth firms lacking tangible assets and raising outside equity find audited GAAP reporting particularly net beneficial. While the firms in our panel deploy over $9 trillion in capital and vastly outnumber public firms across all industries, even among firms with revenues exceeding $100 million, substantial unexplained variation in audited GAAP financial reporting remains. Collectively, we contribute new insights on financial reporting choices in this economically significant segment of the U.S. economy.
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