The Benefits of Selective Disclosure: Evidence from Private Firms
Harvard Business School
May 6, 2015
I investigate an unexplored benefit of being privately-held: Non-SEC-filing private firms’ ability to disclose confidential information to selected investors minimizes the scope for information asymmetry between the firms and their investors. This decreases private firms’ exposure to misvaluation and leads them to hold less precautionary cash than similar public firms, as private firms do not need to optimize the timing of their equity issues. Consistent with these predictions, I use a unique panel of non-SEC-filing private U.S. firms to show that the average public firm holds twice as much cash as the average large private firm. This cash gap is driven by small- and medium-sized public firms, which are most equity dependent, and is larger in industries with higher exposure to misvaluation shocks.
Number of Pages in PDF File: 73
Keywords: Private companies; Selective disclosure; Corporate cash; Precautionary motives; Market timing; Share issuance; IPOs
JEL Classification: G32; L26; D22
Date posted: December 6, 2010 ; Last revised: May 8, 2015
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