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Discussion of “Is the risk of product market predation a cost of disclosure?”

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  • Shroff, Nemit

Abstract

Bernard (2016) proposes that financially constrained firms susceptible to “product market predation” are more likely to avoid complying with a mandatory requirement to publicly disclose financial statements. Bernard tests and finds that financially constrained private firms in Germany are less likely to disclose their financial statements despite being subject to a law requiring them to do so and interprets this evidence as consistent with predation risk affecting firms’ disclosure decisions. I discuss how Bernard׳s findings advance our understanding of the incentives and disincentives for disclosure. I evaluate the theoretical rationale – i.e., product market predation – as the motive for non-disclosure as well as the strengths and weaknesses of his empirical analyses. My discussion highlights the implications of these findings for disclosure regulation, especially as it relates to small private firms. I end my discussion with suggestions for future research, including ideas to use the empirical setting identified by Bernard for answering other research questions.

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  • Shroff, Nemit, 2016. "Discussion of “Is the risk of product market predation a cost of disclosure?”," Journal of Accounting and Economics, Elsevier, vol. 62(2), pages 326-332.
  • Handle: RePEc:eee:jaecon:v:62:y:2016:i:2:p:326-332
    DOI: 10.1016/j.jacceco.2016.08.002
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    Cited by:

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    2. Hoopes, Jeffrey L. & Robinson, Leslie & Slemrod, Joel, 2018. "Public tax-return disclosure," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 142-162.
    3. Bernard, Darren & Burgstahler, David & Kaya, Devrimi, 2018. "Size management by European private firms to minimize proprietary costs of disclosure," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 94-122.
    4. Michael Minnis & Nemit Shroff, 2017. "Why regulate private firm disclosure and auditing?," Accounting and Business Research, Taylor & Francis Journals, vol. 47(5), pages 473-502, July.
    5. Bernard, Darren & Kaya, Devrimi & Wertz, John, 2021. "Entry and capital structure mimicking in concentrated markets: The role of incumbents’ financial disclosures," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    6. Marcelo Ortiz, 2020. "Financial disclosure environment and the cash policy of private firms," Economics Working Papers 1692, Department of Economics and Business, Universitat Pompeu Fabra.
    7. Michael P. Donohoe & Hansol Jang & Petro Lisowsky, 2022. "Competitive Externalities of Tax Cuts," Journal of Accounting Research, Wiley Blackwell, vol. 60(1), pages 201-259, March.
    8. Roychowdhury, Sugata & Shroff, Nemit & Verdi, Rodrigo S., 2019. "The effects of financial reporting and disclosure on corporate investment: A review," Journal of Accounting and Economics, Elsevier, vol. 68(2).
    9. Marcelo Ortiz, 2020. "Financial Disclosure Environment and the Cash Policy of Private Firms," Working Papers 1148, Barcelona School of Economics.

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