Discussion of The Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms

摘要

In this discussion, I review Minnis [2011] in the context of the broader literature on private firm financing. I describe the unique features of the private firm setting and how it affects research design and inference. I detail the alternative information sources available to debt financiers of private firms that may limit the role of auditors and firm financial statements. Further, I review the broad literature in the private firm setting that documents the many omitted correlated variables that affect cost of debt. Differences between private and public firms, such as the ability to accurately identify arm's length liabilities of firm outsiders, likely results in greater estimation noise when inferring cost of debt from private firms' financial statements.