An empirical analysis of voluntary disclosure of sales by small and medium sized enterprises

In Europe, small and medium sized enterprises (SMEs) are allowed to publish their financial statements in an abridged format, rather than a full format which applies to large firms. One of the main characteristics of this abridged format is that disclosure of sales is non obligatory. It is left entirely to the decision of the firm. In this paper we use a sample of 22 000 Belgian SMEs to determine which firms are more likely to disclose sales. A LOGIT model is used to test the relationship between firm characteristics like profitability, competitive environment or financial position and disclosure. Our findings suggest that especially for very small SMEs such a relation can indeed be found. Depending on profitability, the nature of the firm’s activity and its location, different relations can be identified. In the second part of the research, we focus on voluntary disclosure of sales in the first year of operation. We relate this first disclosure decision to the percentage of disclosing firms in the sector to see whether new firms tend to follow what is ‘common practice’ in the market they enter. Finally, we look at disclosure at the sector level. In a linear regression model we study the relation between the percentage of disclosing firms and sector characteristics. This paper contributes to the empirical voluntary disclosure literature in two ways. First, we clearly focus on SMEs whereas empirical accounting research usually studies large, often listed firms. Second, we believe it is important to know how SMEs react to the possibility not to disclose sales as this may be an indication of how they react to disclosure requirements in general. This information will definitely be useful for future accounting and disclosure legislation.