In contrast, privately held firms have relatively concentrated ownership structures and hence can efficiently communicate among shareholders information via private channels. Therefore, financial information and reported earnings are less important in communicating firm performance, which in turn makes private firms less likely to expend resources (., hiring a high quality auditor) to produce earnings that are highly informative about economic Moreover, reported earnings can assume a different role than for public firms. For instance, private firms face less of a tradeoff if they manage earnings to minimize taxes but make them less informative in the process. Alternatively, earnings can be used in determining dividends and other payouts.
