 Entrepreneurs’ legal infractions and hidden information: Evidence from small business bankruptciesStefan Sundgren and Irina Alexeyeva International Review of Law and Economics, 2022, vol. 69, issue C Abstract: We study how entrepreneurs’ attitudes toward risk, as measured by their personal legal infractions, are related to information asymmetry and agency problems prior to bankruptcy, using a sample of 260 small Swedish firms. We find that auditor resignations are more likely in firms where entrepreneurs have legal infractions. Furthermore, we find that legal infractions are negatively related to the likelihood of a firm disclosing its annual report and the quality of the bookkeeping, suggesting that information asymmetry problems are more severe when the entrepreneurs have legal infractions. We also find that creditors’ recovery rates in bankruptcy are lower if the entrepreneurs have legal infractions related to serious traffic offences, such as driving under the influence of alcohol or without a license. Keywords: Financial reporting quality; Auditing; Board characteristics; Legal infractions; Self-control; Risk attitude; Bankruptcy; Creditors’ recovery rates; Indirect bankruptcy costs; Direct bankruptcy costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:69:y:2022:i:c:s0144818821000685 DOI: 10.1016/j.irle.2021.106044 Access Statistics for this article International Review of Law and Economics is currently edited by C. Ott, A. W. Katz and H-B. Schäfer More articles in International Review of Law and Economics from Elsevier |
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