The availability of stock prices and reporting quality: Evidence from the disclosures of publicly-traded and nontraded firms

Using accounting disclosures of traded (public) and nontraded (private) firms, we examine whether the availability of stock prices that are determined by the market affects the demand for and provision of high-quality financial statements. We predict that market-based prices act as a substitute source of information and reduce the demand for reporting quality of traded firms. In turn, absent market-based prices, we expect that demand for reporting quality is higher for nontraded firms since financial statements assume a more prominent role in facilitating capital transactions. We find that nontraded-firm investors have a greater demand for financial statements. 

Increases in such demand are associated with more extensive fair value disclosures, greater investments in accounting quality, and greater predictive ability of historical cost information for future cash flows. We confirm our results using two economically important settings.

Zoom link: https://eur-nl.zoom.us/j/98094168133?pwd=TE56WWRZdzcrNkFUVTNXV1hEeW92QT09