It is my pleasure to provide a brief discussion of Gassen and Fülbier's (2015; hereafter, GF) study of European private firms. My overall impression of GF's study is that it is interesting, offers a nice experimental setting, and importantly, it provides further motivation to examine private firms in Europe and elsewhere. GF's primary findings can be summarized as follows: (1) firms with more debt (higher leverage) report smoother earnings, and (2) the effect of creditors on smoothing is more pronounced when the country-level efficiency of debt contracting is weak. Because I find their study to offer a clear contribution to existing literature, the following discussion is rather brief.
Compared with the large body of literature on publicly listed companies, there is limited extant research on private (or unlisted) firms. Although some interesting issues by definition can only be examined in public firms, I believe the primary reason for the...
