Differential reporting for small companies: Exploring the determinants of voluntary disclosure

Drawing on the literature on voluntary disclosure, this study examines the disclosure choices of small companies operating under the EU accounting directive. Within the EU directive, small companies can choose a lower level of disclosure (abbreviated rules) or the higher level of disclosure required for medium and large companies (full rules). An analysis of a sample of 149,664 small private Italian companies reveals that voluntary adopters of the full rules are characterized by group affiliation and limited family control and influence. Moreover, higher levels of disclosure are observed in environments with lower social capital and in firms being targeted for mergers and acquisitions (M&A). The results are robust to alternative variable definitions, the use of propensity score matching, and the inclusion of region fixed effects. Our findings provide interesting insights into the financial reporting behavior of small companies. They also have implications for regulators engaged in the current debate on mandatory disclosures for small companies.