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While recently introduced EU regulation on the statutory audit of public interest entities (PIEs) aims to improve audit competition and quality, its success and impact depends on the definition of a PIE applied across the various EU Member States. In the UK, even though little is known about their auditing choices, these changes will not apply to most private companies despite their importance to the wider economy. The purpose of this paper is to provide an in-depth analysis of the private company audit market and examine the lobbying behaviour of the accounting profession around the definition of a PIE in the UK.

Using a large panel of independent private company audits in the UK and a textual analysis of submitted comment letters to a government consultation on the new regulation, this paper presents a comprehensive analysis of the audit market for private companies by measuring supplier concentration using four different measures of market share, and of the lobbying behaviour of the accounting profession.

There are two main findings. First, the private company audit market is characterised by low auditor switching rates along with a tight oligopoly of the largest independent private company audits maintained by the Big Four audit firms. Second, the lobbying behaviour of accounting and audit firms sought, and succeeded, to limit the scope of the definition of a PIE in the UK, consistent with the theoretical predictions of monopoly capitalism and the theory of professions.

The paper shows that the definition and scope of a PIE needs revisiting both within the UK and across all EU Member States, with a view to including more of these economically important private companies and highlights the policy challenge of increasing competition and choice in a concentrated audit market.

Prior studies suggest that, in an industry in which several public firms operate (i.e. greater public firm presence), uncertainty about business operations within the industry is reduced due to greater analyst coverage and quality of information disclosure. In this study, the authors examine how UK private firms respond to investment opportunities in fixed intangible assets (FIAs) in an environment characterised by greater public firm presence (PFP).

Using data from 61,278 (1,358) private (public) UK firms operating in ten sectors spanning from 2006 to 2016, the authors conduct this analysis by using panel econometric techniques.

The authors observe that private firms are more responsive to their FIA investment opportunities when they operate in industries with more PFP. Also, the authors find that firms in industries with better information quality use more debt and have longer debt maturity security but less internal cash flow. Overall, the findings indicate that PFP generates positive externalities for private firms by lessening industry uncertainty and enhancing more efficient FIA investment. The results are robust to endogeneity concerns.

A key limitation of the study is that it focuses on a single country (the UK) and therefore there is a likelihood that the results found are specific to this setting but not others, particularly developing and emerging economies. Thus, future studies could explore these ideas from the viewpoint of multiple countries.

Overall, the study demonstrates the importance of information disclosure in driving investment decisions of firms.

While this paper builds on the information disclosure and corporate investment literature, it is one of the first attempts, to the best of the authors’ knowledge, to explore how private UK firms respond to investment in FIAs in an environment characterised by greater PFP.

This paper aims to examine the relationship between board gender diversity and private firm performance.

The authors test the association between board gender diversity and private firm performance by estimating pooled multivariate regressions using an unbalanced panel data set of 115,253 firm-year observations.

The authors find that younger, less busy and local women directors enhance private firm performance. Firms with 40% or more women directors report triple the economic benefits compared to boards with at least 20% women directors. Considering firm size, women directors significantly increase small firm profitability, and the effect is more pronounced for high-risk firms. Greater board gender diversity enhances small firm performance as the monitoring role of women directors benefits the firm even in the presence of busy men directors. Consistent with the agency theory framework, the authors find that women directors improve small firm profitability in the presence of agency costs.

Due to the lack of availability of data about private firms, many factors are not directly observable. The analysis uses accounting-based performance measures that may be subject to managerial discretion. Nevertheless, the authors report highly significant results using cash-based performance measures that substantiate the overall findings.

The results of the present study point to the need for private firms to increase board gender diversity and consider women director busyness, age, nationality and firm size when making board director appointments.

This study adds to the scarce existent literature investigating private firms. The results contribute to the understanding of gender-diverse boards as well as the attributes of women directors that enhance private firm performance.

This study provides a large sample comparison of research and development (R&D) spending intensity in private and public firms and the extent to which these firms' unique characteristics affect their R&D spending rate.

The study compares both private and public data from UK firms for the period 2006–2016, generating a total matched 232,029 firm-year observations, and applies a probability model technique to our large panel datasets.

The authors uncover that private firms show lower R&D spending intensity compared to their public counterparts. The authors evidence also shows that privately owned firms in the technological (non-technological) sector display higher (lower) probability of R&D spending intensity. Compared with public firms, the authors further observe that the intensity of private firms' R&D spending increases with higher internal cash flow, leverage and industry information quality. The authors results remain robust to alternative econometric models.

Despite the findings of this study, the authors would like to point out that the use of a single country's data limits the generalisability of our findings. Thus, future studies may also consider extending this study across multiple countries.

A key implication of our study is that private firms are more likely to finance R&D intensity from the internally generated cash flow compared to the public ones. This stems from the fact that private firms are more likely to experience higher costs in raising external finance for innovative activities than public firms. Thus, easy access to funding for private firms is vital for enhancing R&D activities of the private firms.

By combining both private and public firms' datasets, the authors are able to provide new evidence to suggest that the intensity of private firms' R&D spending is dependent on internal cash flow, leverage and the industry information level. In fact, to the best of the authors’ knowledge, this is the first study that explores these relationships.

The purpose of this paper is to investigate two related questions. First, is earnings management behaviour in private firms related to managerial ownership and if so, what form does the relationship take. Second, is there evidence of opportunistic earnings management behaviour in private firms.

This study uses univariate and multivariate (regression) methodologies to examine the association between managerial ownership and earnings management in private firms. The study employs a data set of 1,223 large private UK firms.

Evidence is presented indicating opportunistic earnings management behaviour in private firms. Specifically, firms with low managerial ownership appear to engage in more earnings management when faced with poor performance. Further, when firms report income-increasing discretionary accruals, the magnitude of abnormal accruals varies non-linearly with managerial ownership.

This study is limited by availability of data on sample firm ownership. This study uses cross-sectional data due to these limitations. Further research could investigate the relationships between earnings management and classes of shareholders other than managers in private firms.

Policy implications of this work suggest that non-managing shareholders in private firms face considerable agency costs, in particular where managerial ownership is very low or very high.

Pervasiveness of earnings management in private firms compared to public firms is well documented in the literature. There is limited extant research on the relationship between ownership structure and earnings management in private firms. The novel aspect of this study is to present findings on the association between this behaviour, managerial ownership and firm performance in private firms.

This empirical research paper draws evidence from a database of UK independent private companies (n=250) and reports on the financial aspirations of owner‐managers of family firms with respect to the flotation route. Following a brief review of the literature, the paper proceeds with an introduction of the UK survey into the financial development of private SMEs. Then evidence is presented on the perceived factors that influence the decision of owner/directors of family companies to consider the flotation option. Phase A employs univariate statistical analysis to contrast financial philosophies of the owner‐managing directors (OMDs) of family firms against those of their mainstream private counterparts. Phase B employs cluster analysis to categorise sample family companies into four generic groups that evidently highlight that the PLC route is not always tailored to financial issues. The empirical results demonstrate that the financial strategies of family companies are more or less in line with the behavioural issues shaping all private companies irrespective of family control. Finally, the paper concludes with a set of tentative policy implications. To encourage the public equity development of smaller privately held companies, particularly family firms, there is scope for more policy initiatives that are tuned to the “socio‐behavioural‐cultural” ethos of private‐OMDs as they master their corporate and entrepreneurial odyssey.

The purpose of this study is to examine the relationship between auditing/non-auditing and accounting timeliness among Swedish private firms.

This paper uses regression analysis to test the relationship between auditing and two measurements of timeliness; lead time and late filing. The sample consists of Swedish private firms.

This paper finds that audited firms, when compared with unaudited firms, are significantly less timely. Moreover, greater profitability was associated with more timeliness but only for audited firms. The results of this paper also show that firms being audited by a big 4 auditor are significantly timelier than firms being audited by a non-big 4 auditor.

The findings in this paper suggests that one aspect of accounting quality, timeliness, does not seem to benefit from auditing in a Swedish context. There is a debate about whether the threshold levels in Sweden should be raised so that more firms voluntarily can opt out of audit. Those opposing a raised threshold level claim that auditing has positive effects on accounting quality and consequently that a raised level would have adverse effects. The findings in this paper do not support such a claim.

Little is known about timeliness in private firms compared to public firms and this paper fills that void. Contrary to prior research, findings show that unaudited firms in a Swedish regulatory setting actually are timelier than their audited counterparts. This questions one of the (presumed) benefits of auditing and should stimulate more research on this issue.

Since the UK Companies Act 1981, different reporting standards have developed for different classes of company to reduce the reporting burden on non-listed companies. There are now different regimes for listed, large private, medium-sized, small and micro companies. This strategy raises the issue of whether earnings quality across the different classes of company is comparable. The paper aims to discuss this issue.

The paper uses the smoothness of earnings to measure reporting quality across the different types of companies from 2006 to 2013, based on 514,000 observations. Smoothness is an indicator of poor quality.

The authors find that listed companies have the highest earnings quality, closely followed by small and micro companies. In contrast, large private and medium-sized companies have much lower earnings quality. Overall, the authors find companies which switch between reporting regimes have lower earnings quality. The authors also find that earnings quality is not affected by the small company exemption from audit.

Companies filing abbreviated accounts are excluded since they do not file an income statement. The recent revisions to UK GAAP (FRS 102 and FRS 105) are not examined due to insufficient data.

The Financial Reporting Council’s (FRC) strategy of reducing the financial reporting and auditing obligations for small companies seems not to have significantly affected earnings quality. However, the FRC may need to review the reporting requirements of large private and medium-sized companies and also the option of companies to switch between reporting regimes; in these settings earnings quality appears to be weaker.

The paper studies the effect of earnings quality across the different reporting regimes in the UK. Novel and important features of the study are that the sample covers a wide variety of small and micro companies which have not been analyzed previously; the results are disaggregated by year, for assurance that the results are not driven by a single rogue year; and the authors also address the small company exemption from audit, and the flexibility of non-listed companies to switch between regimes.

The purpose of this paper is to examine the effect of pre-acquisition earnings management on the performance of private firm management buyouts.

The study examines 291 UK private firms acquired by their managers between 2004 and 2012. Earnings management is investigated by means of cross-sectional discretionary accruals models, and estimated discretionary accruals are regressed on performance changes in the three years following acquisition.

Management buyouts of private firms are preceded by earnings overstatement and followed by performance deterioration. Private equity sponsored firms engage less in earnings management and remain more profitable than non-sponsored buyouts. Upward earnings managers cease to outperform industry after second post-buyout year, while aggressive earnings managers do not outperform industry at all. Discretionary total accruals are inversely associated with performance changes in the three years after buyout, and explain over 4 per cent of the changes in performance.

Pertinent to the utilisation of private firms and their exemption from publishing cash flow statement, the study relies on accrual-based models for tests of earnings management.

The paper contributes to the mergers and acquisitions literature and value creation debate in buyouts by providing the first tests of earnings management and post-acquisition performance in private firm management buyouts.

The purpose of this paper is to empirically examine the extent at which idiosyncratic and financial market uncertainty affect the UK private manufacturing firms' investment decisions.

A firm‐level panel data covering the period from 1999 to 2008 drawn from the Financial Analysis Made Easy database was analyzed using the system‐generalized method of moments (GMM) technique to purge time‐invariant unobserved firm‐specific effects and to mitigate the potential endogeneity issues.

The results from the two‐step robust system‐GMM estimation indicate that firms significantly reduce their capital investment expenditures when uncertainty (measured by either form) increases. The findings also reveal that private firms' investment is more sensitive to idiosyncratic uncertainty than to financial market uncertainty. The results related to firm characteristics suggest that the firm‐specific variables such as debt‐to‐assets ratio, growth of sales and cash flow‐to‐assets ratio are also important in the determination of private firms' investment. The sensitivity analysis confirms that the findings are robust to an alternative method of estimation as well as to an alternative measure of idiosyncratic uncertainty.

The findings of the paper are useful for firms' investment decisions and authorities in designing effective fiscal and monetary policies.

The main value of this study is to investigate the effects of both idiosyncratic and financial market uncertainty on the investment decisions of private limited manufacturing firms.