Limits of private firms' disclosure avoidance - Evidence from enforcing financial statements publication in Germany

In 2006 Germany strengthened the enforcement of mandatory financial statement disclosure for private firms. Since the law enforced disclosure but not its quality, we examine whether firms forced to disclose reduced financial reporting quality, for example to prevent competitors and other parties from inferring profitability, liquidity and other negotiation relevant information in time. We use proprietary data by the Deutsche Bundesbank, which covers information about firms that did not disclose financial statements before the law. Analyses based on differences-in-differences, regression discontinuity and PSM extend prior studies and suggest that firms did not significantly reduce financial reporting quality. These findings are potentially relevant for regulators as they document limits of private firms' disclosure avoidance and emphasize the benefits of disclosure. (c) 2021 Elsevier Inc. All rights reserved.