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The impact of filing micro-entity accounts and the disclosure of reporting accountants on credit scores: an exploratory study

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  • Michael J. Peel

Abstract

There is a dearth of evidence regarding the potential costs incurred by small private companies that opt to publish only an unaudited abbreviated balance sheet. This paper provides new evidence regarding whether UK companies that publish reduced balance sheet information in micro-entity annual accounts are allocated lower credit scores by a credit rating agency. Recently, for the smallest companies, a new exemption category for ‘micro-entities’ was introduced. Qualifying companies may elect to file even less unaudited balance sheet information than their small company counterparts. Consistent with the conjecture that publishing micro accounts conveys a negative signal to the credit scorer, there is systematic evidence that micro-entities are assigned worse credit scores. This result is robust to the employment of statistical methods that account for observed and unobserved bias. Based on both assurance and signalling tenets, the second novel conjecture examined in this study is that companies which disclose their annual accounts are prepared by an accountancy firm (reporting accountant) will attract higher credit scores. Contrary to extant research which reports that companies that opt for voluntary audits receive higher credit scores, there is no evidence that the credit scorer rewards companies whose accounts bear the imprimatur of a reporting accountant.

Suggested Citation

  • Michael J. Peel, 2019. "The impact of filing micro-entity accounts and the disclosure of reporting accountants on credit scores: an exploratory study," Accounting and Business Research, Taylor & Francis Journals, vol. 49(6), pages 648-681, September.
  • Handle: RePEc:taf:acctbr:v:49:y:2019:i:6:p:648-681
    DOI: 10.1080/00014788.2018.1493374
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    Cited by:

    1. Clatworthy, Mark A. & Peel, Michael J., 2021. "Reporting accountant appointments and accounting restatements: Evidence from UK private companies," The British Accounting Review, Elsevier, vol. 53(3).
    2. Francesco Ciampi & Alessandro Giannozzi & Giacomo Marzi & Edward I. Altman, 2021. "Rethinking SME default prediction: a systematic literature review and future perspectives," Scientometrics, Springer;Akadémiai Kiadó, vol. 126(3), pages 2141-2188, March.
    3. Brasch, Annika & Eierle, Brigitte & Jarvis, Robin, 2022. "Research and development investments, development costs capitalization, and credit ratings: Exploratory evidence from UK R&D-active private firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 48(C).
    4. Wang, Xiaodong & Han, Liang & Huang, Xing, 2020. "Bank competition, concentration and EU SME cost of debt," International Review of Financial Analysis, Elsevier, vol. 71(C).
    5. Alice Rossi & Tom Vanacker & Silvio Vismara, 2023. "Unsuccessful Equity Crowdfunding Offerings and the Persistence in Equity Fundraising of Family Business Start-Ups," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1327-1355, July.
    6. Farah Saerens & Stefanie Ceustermans, 2021. "Abbreviated or Micro-Entity Accounts? Effect of Financial Reporting Format on the Availability of Trade Credit," Sustainability, MDPI, vol. 13(15), pages 1-18, July.

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