Professor of Accounting and Control
Business Planning; Financial Statements; Start-ups; USA; Venture Capital;
Purpose - To evaluate the business projections and financial statements of US start-ups. Design/approach/methodology - Takes data from the US Panel Study of Entrepreneurial Dynamics (PSED) and explains the regulations surrounding new ventures' financial accounts.Looks at the costs of account preparation, and the reduced information asymmetry and agency costs. Considers adverse selection risk to the cost of capital from venture capitalists. Examines 200 start-ups' responses to the PSED survey, by industry, by ownership, accounting experience, extent of planning and predicted sales. Runs logistic regressions. Findings - Finds that an intention to produce financial statements is positively associated with outside funding, intensity of competition, and level of sales; and negatively associated with the stage of production development.Associates projections with the importance of intangible assets, research and high technology to the firm. Adds that uncertainty encourages predictions.Research limitations/implications - Proposes studying the dynamics of reporting frequency, and its benefits, over the firm's lifecycle, and the detail of those reports.Originality/value - Presents a link between financial reporting and the success of the venture, rather than the valuation.