Medium-sized companies voluntarily slow down their growth

12.02.2019

This is the conclusion drawn by Prof. Dr. Devrimi Kaya of the RUB, together with colleagues from the London Business School and the University of Washington, after an empirical analysis including data from hundreds of thousands of companies from twelve European countries.

In the European Union, corporations of a certain size are required to disclose their annual accounts in detail. In order to evade this obligation, medium-sized companies in Germany and Europe are deliberately slowing down their growth so that competitively relevant information do not have to be revealed.

Waiver of seven percent growth
The smaller a company, the less business information such as revenue or profit margins have to be disclosed. The empirical analyses show that companies forego around seven percent growth in order to consciously keep themselves small. Many even accept fines and penalties of about 2,500 up to 25,000 euros in order to publish their balance sheets belated. They prevent the competition from gaining insights into the companies accounts. Furthermore other costly instruments, such as the use of temporary workers, are accepted by companies in order to stay below the given threshold of employees.

2019 02 12 Kaya Bilanzen Km_
Prof. Dr. Devrimi Kaya
© RUB, Marquard

"While the financial figures of German SMEs are publicly available, foreign partners and competitors from North America and Asia do not have to disclose any data at all," adds Kaya. Thus, the obligation to disclose the annual financial accounts is a real brake on growth for German SMEs.

Useful for benchmarking
In a second study, however, the researchers estimated positive effects of published balance sheets: Founders use the data to decide on the capital structure of their own company.

The results of the first study were published in 2018 in the "Journal of Accounting and Economics"; the second study was published in advance on the SSRN online platform.

The RUB's full report can be found here.