The contradictory consequences of regulation: The influence of filing abbreviated accounts on UK small company performance

Abstract

This article develops the conceptualisation of regulation as a dynamic force, enabling and motivating actions that contribute to small company performance as well as being a burden, cost or constraint. Using interview and survey data from a study of preparers and users of small company abbreviated accounts, the article argues that regulation generates contradictory consequences as both confidentiality and disclosure potentially serve their interests. It presents an analytical framework specifying the mechanisms through which regulation influences performance directly and indirectly. Regulation affects small companies directly by requiring the disclosure of financial information but also, indirectly by influencing important stakeholders – for example, banks, suppliers, customers and others – to provide vital resources such as credit, and market opportunities. Indirect regulatory influences might be only partly visible yet exert a powerful effect on performance.

Keywords

abbreviated accounts credit risk disclosure financial reporting regulation small company

Get full access to this article

View all access options for this article.

References

Ang

(1992) On the theory of finance for privately held firms. Journal of Small Business Finance 1(4): 185–203.

Ang

Wuh Lin

Tyler

(1995) Evidence of the lack of separation between business and personal risk among small business. Journal of Small Business Finance 4(2–3): 197–210.

Armstrong

Davis

Liadze

Rienzo

(2013) Evaluating Changes in bank lending to UK SMEs over 2001–12: Ongoing tight credit? Econometric analyses using data from the UK survey of SME finances and the SME Finance Monitor. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/193945/bis-13-857-evaluating-changes-in-bank-lending-to-uk-smes-2001–12.pdf (accessed 30 July 2013).

Arruñada

(2011) Mandatory accounting disclosure by small private companies. European Journal of Law and Economics 32(3): 377–413.

Association of British Insurers (2009) Trade credit insurers pay record amount in claims as businesses are helped through recession. News release, 23 December. Available at: www.abi.org.uk/News/News-releases/2009/12/Trade-credit-insurers-pay-record-amount-in-claims-as-businesses-are-helped-through-the-recession (accessed 30 July 2013).

Bank of England (2009) Credit Conditions Survey: Survey Results, 2009 Q4. Available at: www.bankofengland.co.uk/publications/Documents/other/monetary/ccs/creditconditionssurvey091231.pdf (accessed 30 July 2013).

BDRC Continental (2013) SME Finance Monitor: Q1 2013: The Uncertainty of Demand. Available at: www.sme-finance-monitor.co.uk/ (accessed 30 July 2013).

Berger

Udell

(2006) A more complete conceptual framework for SME finance. Journal of Banking & Finance 30(11): 2945–2966.

Berry

Citron

Jarvis

(1993) Financial information, the banker and the small business. British Accounting Review 25(2): 131–150.

10.

Berry

Grant

Jarvis

(2004) European bank lending to the UK SME sector: An investigation of approaches adopted. International Small Business Journal 22(2): 115–130.

11.

Beyer

Cohen

Lys

(2010) The financial reporting environment: Review of the recent literature. Journal of Accounting and Economics 50(2–3): 266–343.

12.

Binks

Ennew

Reid

(1992) Information asymmetries and the provision of finance to small firms. International Small Business Journal 11(1): 35–46.

13.

Chittenden

Kauser

Poutziouris

(2002) Regulatory burdens of small business: A literature review, report for the Small Business Service. Available at: www.berr.gov.uk/files/file38324.pdf (accessed 30 July 2013).

14.

Collis

(2012) Determinants of voluntary audit and voluntary full accounts in micro- and non-micro small companies in the UK. Accounting and Business Research 42(4): 441–468.

15.

Collis

Jarvis

(2000) How owner-managers use accounts, report for the Institute of Chartered Accountants of England and Wales (ICAEW). Available at: www.icaew.com/~/media/Files/Technical/Research-and-academics/publications-and-projects/financial-reporting-publications/how-owner-managers-use-accounts.pdf (accessed 30 July 2013).

16.

Companies House (2013) Statistical tables on companies registration activities 2012/13. Available at: www.companieshouse.gov.uk/about/pdf/companiesRegActivities2012_2013.pdf (accessed 30 July 2013).

17.

Confederation of British Industry (CBI) and Assocation of Chartered and Certified Accountants (ACCA) (2010) Small business finance and the recovery: Results of the 2010 SME credit and finance surveys. Available at: www.accaglobal.com/content/dam/acca/global/PDF-technical/small-business/pol-af-sbf.pdf (accessed 30 July 2013).

18.

Cowling

Liu

Ledger

(2012) Small business financing in the UK before and during the current financial crisis. International Small Business Journal 30(7): 778–800.

19.

Crain

(2010) The impact of regulatory costs on small firms, report for the U.S. Small Business Administration Office of Advocacy. Available at: www.sba.gov/sites/default/files/The%20Impact%20of%20Regulatory%20Costs%20on%20Small%20Firms%20(Full)_0.pdf (accessed 30 July 2013).

20.

Dedman

Kausar

(2012) The impact of voluntary audit on credit ratings: Evidence from UK private firms. Accounting and Business Research 42(4): 397–418.

21.

Department for Business, Innovation and Skills (2012) SME access to external finance, Department for Business, Innovation and Skills Economics Paper No. 16. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/32263/12–539-sme-access-external-finance.pdf (accessed 30 July 2013).

22.

Department for Business, Innovation and Skills (2013a) Simpler financial reporting for micro-entities: The UK’s proposal to implement the ‘Micros Directive’, Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/86259/13–626-simpler-financial-reporting-for-micro-entities-consultation.pdf (accessed 30 July 2013).

23.

Department for Business, Innovation and Skills (2013b) The sixth statement of new regulation. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/211789/bis-13-p121a-bis-sixth-statement-of-new-regulation.pdf (accessed 30 July 2013).

24.

Department for Business, Innovation and Skills (2013c) Small business survey 2012: Credit risk analysis special report. Available at: www.gov.uk/government/uploads/system/uploads/attachment_data/file/204181/bis-13–881-small-business-survey-2012-credit-risk-analysis.pdf (accessed 30 July 2013).

25.

Edwards

Ram

Black

(2003) The impact of employment legislation on small firms: A case study analysis. Department for Trade and Industry Employment Relations Research Series No. 20. Available at: www.bis.gov.uk/files/file11518.pdf (accessed 30 July 2013).

26.

European Commission (2012) Directive 2012/6/EU of the European Parliament and of the Council amending Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:0003:081:0006:EN:PDF (accessed 30 July 2013).

27.

European Union (2011) Financial reporting: Burden reduction for micro-entities – frequently asked questions. EUROPA press release, 14 December. Available at: http://europa.eu/rapid/press-release_MEMO-11–911_en.htm (accessed 30 July 2013).

28.

Fraser

(2009) Small firms in the credit crisis: Evidence from the UK survey of SME finances. Available at: www2.warwick.ac.uk/fac/soc/wbs/research/ei/research/latest/small_firms_in_the_credit_crisis_v3-oct09.pdf (accessed 30 July 2013).

29.

Fraser

Bhaumik

Wright

(2013) What do we know about the relationship between entrepreneurial finance and growth? ERC White Paper No 4. Available at: http://enterpriseresearch.ac.uk/default/assets//File/ERC%20White%20Paper%20No_4%20Finance%20final.pdf (accessed 30 July 2013).

30.

Hansford

Hasseldine

Howorth

(2003) Factors affecting the costs of UK VAT compliance for small and medium-sized enterprises. Environment and Planning C: Government and Policy 21(4): 479–492.

31.

Healy

Palepu

(2001) Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics 31(1–3): 405–440.

32.

Hicks

Goo

(2008) Cases and Materials on Company Law (6th edn). Oxford: Oxford University Press.

33.

HM Treasury and Department for Business, Innovation and Skills (2011) The plan for growth. Available at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/184602/2011budget_growth.pdf.pdf (accessed 30 July 2013).

34.

Insolvency Service (2013) Insolvencies in the first quarter 2013: Statistics release, 3 May. Available at: www.insolvencydirect.bis.gov.uk/otherinformation/statistics/201305/presswithtables.pdf (accessed 30 July 2013).

35.

Jensen

Meckling

(1976) Theory of the firm: Managerial behavior, agency costs and the ownership structure. Journal of Financial Economics 3(4): 305–360.

36.

Kitching

(2006) A burden on business? Reviewing the evidence base on regulation and small business performance. Environment and Planning C: Government and Policy 24(6): 799–814.

37.

Kitching

(2007) Is less more? Better regulation and the small enterprise. In: Weatherill

(ed.) Better Regulation. Oxford: Hart, pp.155–173.

38.

Kitching

Kašperová

Blackburn

Collis

(2011) Small company abbreviated accounts: A regulatory burden or a vital disclosure? Report for the Institute of Chartered Accountants of Scotland. Available at: http://icas.org.uk/kitching/ (accessed 30 July 2013).

39.

Kitching

Hart

Wilson

(2013a) Burden or benefit? Regulation as a dynamic influence on small business performance. International Small Business Journal. Epub ahead of print, 4 July 2013. DOI: 10.1177/0266242613493454.

40.

Kitching

Kašperová

Collis

(2013b) The bearable lightness of the administrative burden: UK financial reporting regulation and small company performance. In: Welter

Blackburn

Ljunggren

Åmo

(eds) Entrepreneurial Business and Society. Cheltenham: Edward Elgar.

41.

Marriott

Collis

Marriott

(2006) Qualitative Review of the Accounting and Auditing Needs of Small and Medium-sized Companies and their Stakeholders. London: Financial Reporting Council.

42.

Mayer-Schönberger

(2010) The law as stimulus: The role of law in fostering innovative entrepreneurship. I/S: A Journal of Law and Policy for the Information Society 6(2): 153–188.

43.

Office for National Statistics (2013) GDP and the labour market, Q1, 2013, May update. Available at: www.ons.gov.uk/ons/dcp171780_312209.pdf (accessed 30 July 2013).

44.

Professional Oversight Board for Accountancy (2006) Review of how accountants support the needs of small and medium-sized companies and their stakeholders. Available at: www.frc.org.uk/getattachment/ade68ea3–085b-45ad-9ecd-bbc8a3187cc6/Review-of-How-Accountants-Support-the-needs-of-Small-and-Medium-Sized-Companies-and-their-Stakeholders.aspx (accessed 30 July 2013).

45.

World Bank (2012) Doing business in 2013: Smarter regulations for small and medium-size enterprises. Available at: www.doingbusiness.org/reports/global-reports/doing-business-2013 (accessed 30 July 2013).

46.

World Economic Forum (2012) The global competitiveness report 2012–13. Available at: www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012–13.pdf (accessed 30 July 2013).