Determinants of Voluntary Disclosure of Sales in Small Private Companies

Small businesses are the backbone of the economy in many countries. In Europe, for example, small companies represent more than 90% of all companies (e.g., Lukacs 2005). Although these companies represent such an important portion of the economy, few studies have examined their voluntary disclosure decisions. Because small companies have certain unique characteristics compared with their larger counterparts, the general applicability of past voluntary disclosure studies to small companies is questionable. Drawing on agency and proprietary cost theory, this study investigates whether ownership, competition and accountant factors influence the decision to disclose financially sensitive information on a voluntary basis. Our results (using an e-mail questionnaire, N= 1,068) indicate that nearly 40% of the responding companies are not aware of their disclosure behaviour. For companies that are aware of their disclosure behaviour, the logistic regression analysis demonstrates that factors relating to the separation of ownership and control, namely the type of ownership and number of shareholders are among the most important determinants in the voluntary disclosure decision of small private companies. Companies with at least one legal entity as an owner of a company are less likely to disclose, while companies with more shareholders are more likely to disclose. We also provide evidence that perceived competition and the default setting of the accounting software used have a significant influence on the voluntary disclosure behaviour.