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Entrepreneurs’ legal infractions and hidden information: Evidence from small business bankruptcies
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.ORCID iD: 0000-0002-2496-108X
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Business Administration.ORCID iD: 0000-0001-5804-9454
2022 (English)In: International Review of Law and Economics, ISSN 0144-8188, E-ISSN 1873-6394, Vol. 69, article id 106044Article in journal (Refereed) Published
Abstract [en]

We study how entrepreneurs’ attitudes toward risk, as measured by their personal legal infractions, are related to information asymmetry and agency problems prior to bankruptcy, using a sample of 260 small Swedish firms. We find that auditor resignations are more likely in firms where entrepreneurs have legal infractions. Furthermore, we find that legal infractions are negatively related to the likelihood of a firm disclosing its annual report and the quality of the bookkeeping, suggesting that information asymmetry problems are more severe when the entrepreneurs have legal infractions. We also find that creditors’ recovery rates in bankruptcy are lower if the entrepreneurs have legal infractions related to serious traffic offences, such as driving under the influence of alcohol or without a license.

Place, publisher, year, edition, pages
Elsevier, 2022. Vol. 69, article id 106044
Keywords [en]
Financial reporting quality, Auditing, Board characteristics, Legal infractions, Self-control, Risk attitude, Bankruptcy, Creditors’ recovery rates, Indirect bankruptcy costs, Direct bankruptcy costs
National Category
Business Administration
Research subject
Business Studies
Identifiers
URN: urn:nbn:se:umu:diva-191251DOI: 10.1016/j.irle.2021.106044ISI: 000771905000005Scopus ID: 2-s2.0-85122637334OAI: oai:DiVA.org:umu-191251DiVA, id: diva2:1627046
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0104Available from: 2022-01-12 Created: 2022-01-12 Last updated: 2023-09-05Bibliographically approved

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Sundgren, StefanAlexeyeva, Irina

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