Determinants of corporate financial disclosure in an unregulated environment: evidence from the early 20th century.

We investigate the determinants of corporate financial reporting in an unregulated setting. Prior to the First World War, limited liability companies in Belgium were obliged to publish financial statements, but financial reporting was virtually unregulated. Investor protection was generally very poor. Nevertheless, Belgian stock markets were booming. While the amount of information disclosed in the financial statements was generally low relative to the current levels of disclosure, there was significant variation in financial reporting across firms. Our results suggest that financial reporting was significantly affected by universal bank affiliations, bond financing and stock returns. Dividends were a substitute for income statement transparency.