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PurposeThis study examines the association between investment opportunities and private firms’ performance. While the existing literature predominantly focuses on public firms, mainly from advanced economies, our study delves into private firms in developing countries worldwide. Furthermore, we explore the moderating effects of both female ownership and concentrated ownership, aiming to uncover the role of investment opportunities on firm performance in the relatively understudied context of developing countries and private firms.Design/methodology/approachWe use 36,185 observations from firms in 114 countries across the world, sourced from the World Bank Enterprise Surveys (WBES) from 2006 to 2018. We estimate the regression models using ordinary least squares (OLS) regression method. We also employ an advanced supervised machine learning approach to provide additional insights into the role of investment opportunities in predicting private firms’ performance.FindingsWe find a positive association between private firms’ investment opportunities and their performance. Furthermore, our study demonstrates that female ownership positively, while concentrated ownership negatively, moderates this association.Originality/valueOur study’s findings provide critical insights for the literature investigating the dynamics of the relationship with, and the impact of, investment opportunities on private firms’ performance. The roles of female ownership and concentrated ownership in moderating this relationship have important policy implications for enhancing private firms’ performance.

This paper studies whether and how Big-4 firms provide higher-quality audits than non-Big-4 firms. Specifically, we first examine a Big-4 effect and then explore three sources of the Big-4 effect. To test the Big-4 effect, we use a unique data set of individual audit partners for a large sample of private companies and a novel research design exploiting the fact that auditees may follow the auditor who switches affiliation from a non-Big-4 firm to a Big-4 firm. Thus, we compare audit quality and audit fees of the same partner–auditee pairs before and after the switch. The results show that the Big-4 effect exists in the private-firm segment. More important, we find evidence for three sources of the Big-4 effect. First, Big-4 firms are able to recruit non-Big-4 partners who deliver higher audit quality than other non-Big-4 partners in the preswitch period. Second, enhanced learning has taken place after the switch. Third, the increased audit quality can also be attributed to stronger incentives/monitoring . These are new findings to the literature. This paper was accepted by Suraj Srinivasan, accounting .

Research summary: Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary: A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop \"lean\" firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate.

Using a new database that contains accounting data for a large sample of U.S. private firms, we provide an investigation of financial reporting quality (FRQ) of U.S. private versus public firms. We find that in general public firms have higher accrual quality and are more conservative. The results are consistent with public firms' reporting reflecting greater demand for financial information. However, these reporting qualities of public firms are mitigated or eliminated in settings where public firms are more likely to manage earnings or face reduced demand for their financial information. Our study contributes not only to the current debate on private versus public financial accounting, but also to the broader literature attempting to understand the determinants of FRQ.

In this study, we develop a measure of corporate tax avoidance that reduces both financial and taxable income, which we refer to as \"book-tax conforming\" tax avoidance. We use simulation analyses, LIFO/FIFO inventory method conversions, and samples of private and public firms to validate our measure. We then investigate the prevalence of conforming tax avoidance within a sample of public firms. Results from the validation tests indicate that our measure of conforming tax avoidance successfully captures book-tax conforming transactions. Consistent with expectations, we also find that the extent to which public firms engage in conforming tax avoidance varies systematically with the capital market pressures. Our study develops a new measure of conforming tax avoidance that should be useful in future research and provides new insights on the extent to which public firms are willing to reduce income tax liabilities at the expense of reporting lower financial income.

Prior research shows that financial reporting quality (FRQ) is positively related to investment efficiency for large U.S. publicly traded companies. We examine the role of FRQ in private firms from emerging markets, a setting in which extant research suggests that FRQ would be less conducive to the mitigation of investment inefficiencies. Earlier studies show that private firms have lower FRQ, presumably because of lower market demand for public information. Prior research also shows that FRQ is lower in countries with low investor protection, bank-oriented financial systems, and stronger conformity between tax and financial reporting rules. Using firm-level data from the World Bank, our empirical evidence suggests that FRQ positively affects investment efficiency. We further find that the relation between FRQ and investment efficiency is increasing in bank financing and decreasing in incentives to minimize earnings for tax purposes. Such a connection between tax-minimization incentives and the informational role of earnings has often been asserted in the literature. We provide explicit evidence in this regard.

This study uses a comprehensive panel of tax returns to examine the financial reporting choices of medium-to-large private U.S. firms, a setting that controls over $9 trillion in capital, vastly outnumbers public U.S. firms across all industries, yet has no financial reporting mandates. We find that nearly two-thirds of these firms do not produce audited GAAP financial statements. Guided by an agency theory framework, we find that size, ownership dispersion, external debt, and trade credit are positively associated with the choice to produce audited GAAP financial statements, while asset tangibility, age, and internal debt are generally negatively related to this choice. Our findings reveal that (1) equity capital and trade credit exhibit significant explanatory power, suggesting that the primary focus in the literature on debt is too narrow; (2) firm youth, growth, and R&D are positively associated with audited GAAP reporting, reflecting important monitoring roles of financial reporting; and (3) many firms violate standard explanations for financial reporting choices and substantial unexplained heterogeneity in financial reporting remains. We conclude by identifying opportunities for future research.

Research summary: Previous studies have emphasized firm and industry effects on variation in firm performance, but the relationship between forms of ownership and firm performance has been the focus of limited research. This article examines the extent to which ownership form (i.e., public or private ownership) and ownership structure (including diffused ownership and blockholding) affect firm performance. The results of an analysis of 30,525 European Union (EU) firms indicate that form of ownership is an important explanatory factor in the difference in performance among firms. These results underscore the need to study firms characterized by different ownership arrangements and to provide empirical evidence for the study of firm ownership in strategic management. Managerial summary: Motivated by growing evidence on the involvement of different types of owners in the strategies of firms, we studied the extent to which a firm's ownership form (type of legal incorporation, such as public and private ownership forms) and ownership structure (diffused ownership and blockholding) affect its performance. Our study of more than 30,000 firms from the European Union shows that ownership form differences explain some of the performance differences between firms. Our results also indicate that firms with different ownership forms are differently affected by their competitive environment. Overall, the study suggests that choosing the right ownership form can have important strategic consequences. Copyright © 2017 John Wiley & Sons, Ltd.

In this paper, we examine the monitoring role of government customers in emerging markets, a setting where public procurement is significant but the procurement institutions are weak. In these countries, financial statement certifications could be an important mechanism for a private firm to facilitate contracting with governments. Employing a sample of private firms across 98 emerging economies, we first document in-depth private-firm audit regulations for each country. We find that firms are more likely to have financial statements certified by an external auditor when they have government contracts. We further find that the association is less pronounced when governments have weaker monitoring incentives – when suppliers are subject to monitoring from tax authorities or creditors, when government contracting officials receive bribes, and when government spending is less transparent. We corroborate our inferences using the staggered adoption of an E-Procurement system to infer changes in governments’ monitoring incentives and several other robustness checks.

Existing literature on greenhouse gas (GHG) emissions disclosure has paid little attention to private firms, despite the fact that this type of firm is responsible for significant GHG emissions. This study empirically analyzes the GHG disclosure of German private firms. The results suggest that more pronounced information asymmetries due to a more dispersed ownership structure and/or multiple bank relationships are associated with more extensive GHG disclosure. This aligns with arguments from agency and stakeholder theory. While this result is not new for public firms, it is for private firms. Given the specific characteristics of this type of firms (no separation of ownership and control, private communication channels, close bank–borrower relationships), it is not a straightforward assumption that observations from public firms can be transferred to private firms one-to-one. Moreover, higher levels of actual GHG emissions are also associated with more GHG disclosure, indicating that legitimacy theory arguments hold for private firms as well.