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Financial reporting quality and the cost of debt of SMEs

(2015) SMALL BUSINESS ECONOMICS. 45(1). p.149-164
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Abstract
This study explores a large and detailed dataset of financial statements of Belgian small and medium-sized enterprises (SMEs) over the 1997–2010 period. Using accruals quality as a proxy for the quality of SMEs’ financial reports, we find that the quality of SMEs’ financial statements is negatively related to those companies’ effective interest cost. This result is also highly economically significant. The findings in this paper are consistent with the idea that earnings are important for creditors in predicting SMEs’ reimbursement capacity (i.e., future cash flows) and that less estimation error in accruals enhances earnings’ ability to predict future cash flows. We deliver evidence of an important economic benefit of financial reporting for SMEs, to wit, the potential to reduce information asymmetry between SMEs and their creditors through higher-quality financial reporting.
Keywords
EARNINGS MANAGEMENT, MATURITY STRUCTURE, ACCRUAL ESTIMATION ERRORS, PRIVATE EQUITY, PUBLIC FIRMS, CASH FLOWS, INFORMATION, CHOICE, CONTRACTS, NUMBER, SME, Cost of debt, Financial reporting quality, Information asymmetry

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Citation

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MLA
Vander Bauwhede, Heidi, et al. “Financial Reporting Quality and the Cost of Debt of SMEs.” SMALL BUSINESS ECONOMICS, vol. 45, no. 1, Springer, 2015, pp. 149–64, doi:10.1007/s11187-015-9645-1.
APA
Vander Bauwhede, H., De Meyere, M., & Van Cauwenberge, P. (2015). Financial reporting quality and the cost of debt of SMEs. SMALL BUSINESS ECONOMICS, 45(1), 149–164. https://doi.org/10.1007/s11187-015-9645-1
Chicago author-date
Vander Bauwhede, Heidi, Michiel De Meyere, and Philippe Van Cauwenberge. 2015. “Financial Reporting Quality and the Cost of Debt of SMEs.” SMALL BUSINESS ECONOMICS 45 (1): 149–64. https://doi.org/10.1007/s11187-015-9645-1.
Chicago author-date (all authors)
Vander Bauwhede, Heidi, Michiel De Meyere, and Philippe Van Cauwenberge. 2015. “Financial Reporting Quality and the Cost of Debt of SMEs.” SMALL BUSINESS ECONOMICS 45 (1): 149–164. doi:10.1007/s11187-015-9645-1.
Vancouver
1.
Vander Bauwhede H, De Meyere M, Van Cauwenberge P. Financial reporting quality and the cost of debt of SMEs. SMALL BUSINESS ECONOMICS. 2015;45(1):149–64.
IEEE
[1]
H. Vander Bauwhede, M. De Meyere, and P. Van Cauwenberge, “Financial reporting quality and the cost of debt of SMEs,” SMALL BUSINESS ECONOMICS, vol. 45, no. 1, pp. 149–164, 2015.
@article{5898117,
  abstract     = {{This study explores a large and detailed dataset of financial statements of Belgian small and medium-sized enterprises (SMEs) over the 1997–2010 period. Using accruals quality as a proxy for the quality of SMEs’ financial reports, we find that the quality of SMEs’ financial statements is negatively related to those companies’ effective interest cost. This result is also highly economically significant. The findings in this paper are consistent with the idea that earnings are important for creditors in predicting SMEs’ reimbursement capacity (i.e., future cash flows) and that less estimation error in accruals enhances earnings’ ability to predict future cash flows. We deliver evidence of an important economic benefit of financial reporting for SMEs, to wit, the potential to reduce information asymmetry between SMEs and their creditors through higher-quality financial reporting.}},
  author       = {{Vander Bauwhede, Heidi and De Meyere, Michiel and Van Cauwenberge, Philippe}},
  issn         = {{0921-898X}},
  journal      = {{SMALL BUSINESS ECONOMICS}},
  keywords     = {{EARNINGS MANAGEMENT,MATURITY STRUCTURE,ACCRUAL ESTIMATION ERRORS,PRIVATE EQUITY,PUBLIC FIRMS,CASH FLOWS,INFORMATION,CHOICE,CONTRACTS,NUMBER,SME,Cost of debt,Financial reporting quality,Information asymmetry}},
  language     = {{eng}},
  number       = {{1}},
  pages        = {{149--164}},
  publisher    = {{Springer}},
  title        = {{Financial reporting quality and the cost of debt of SMEs}},
  url          = {{http://dx.doi.org/10.1007/s11187-015-9645-1}},
  volume       = {{45}},
  year         = {{2015}},
}

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