Enforcing Mandatory Reporting on Private Firms: The Role of Banks

Miguel Duro, Germán López-Espinosa, Sergio Mayordomo, Gaizka Ormazabal and Maria Rodriguez-Moreno
Additional contact information
Miguel Duro: IESE Business School
Germán López-Espinosa: School of Economics - Universidad de Navarra and IESE Business School
Gaizka Ormazabal: IESE Business School, CEPR and ECGI

No 2238, Working Papers from Banco de España

Abstract: This paper studies firm-level factors shaping the enforcement of financial reporting regulation on private firms and proposes bank lending as a particularly important one. Our tests are based on a rare combination of data sets, which allows us to construct unique measures of misreporting, notably in the form of underreporting of debt. We observe that private firms with bank debt are more likely to file mandatory financial reports and less likely to file information with irregularities. While we also find evidence that the need for bank financing can induce firms to misreport, this concern is mitigated by additional findings suggesting that banks detect reporting issues within private firms’ financial statements. Critically, we observe that firms with reporting issues obtain significantly less credit, especially when the bank has had previous exposure to debt misreporting and when the bank verifies debt information using the public credit registry. In short, our paper documents important firm-level determinants of private firms’ misreporting and highlights that banks play a significant role in the enforcement of mandatory financial reporting on these firms.

Keywords: enforcement of financial reporting; private firms; debt underreporting; financial distress; public credit registries (search for similar items in EconPapers)
JEL-codes: G21 M41 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2022-11
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cfn, nep-des and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2238

DOI: 10.53479/23526

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