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The Benefits of Selective Disclosure: Evidence from Private Firms

Joan Farre-Mensa

Harvard Business School

January 14, 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 lower levels of precautionary cash than similar-sized 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 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: 72

Keywords: Private companies; Selective disclosure; Corporate cash; Precautionary motives; Market timing; Share issuance; IPOs.

JEL Classification: G32; L26; D22

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Date posted: December 6, 2010 ; Last revised: January 15, 2015

Suggested Citation

Farre-Mensa, Joan, The Benefits of Selective Disclosure: Evidence from Private Firms (January 14, 2015). Available at SSRN: http://ssrn.com/abstract=1719204 or http://dx.doi.org/10.2139/ssrn.1719204

Contact Information

Joan Farre-Mensa (Contact Author)
Harvard Business School ( email )
Rock Center 218
Soldiers Field Road
Boston, MA 02163
United States
617-495-6963 (Phone)
HOME PAGE: http://people.hbs.edu/jfarremensa
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