Financial Reporting Regulation and Financing Decisions

Patricia L. Naranjo

Rice University

Daniel Saavedra

UCLA Anderson School of Management

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

July 15, 2015

We study the influence of a major reform in financial reporting regulation – the adoption of the International Financial Reporting Standards (IFRS) – on financing decisions. Across a battery of tests, we document an increase in the issuance of external financing around the new regime. Further, firms make different external financing choices (i.e., debt vs. equity) around the new regulation depending on their ex-ante debt capacity, and use their access to external financing to rebalance their capital structure. Our results are accentuated across firms facing higher adverse selection costs and in countries with stronger institutions. Our findings highlight the importance of financial reporting regulation in explaining financing policies and provide insights into which firms are more likely to benefit from it.

Number of Pages in PDF File: 54

Keywords: Financial Reporting Regulation, Financing Decisions, Information Asymmetry, Capital Structure, International Accounting, IAS, IFRS

JEL Classification: G15, G30, G32, M41

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Date posted: September 17, 2012 ; Last revised: July 17, 2015

Suggested Citation

Naranjo, Patricia L. and Saavedra, Daniel and Verdi, Rodrigo S., Financial Reporting Regulation and Financing Decisions (July 15, 2015). Available at SSRN: http://ssrn.com/abstract=2147838 or http://dx.doi.org/10.2139/ssrn.2147838

Contact Information

Patricia L. Naranjo
Rice University ( email )
6100 South Main Street
McNair Hall - Room 343
Houston, TX 77005-1892
United States
7133485386 (Phone)
Daniel Saavedra
UCLA Anderson School of Management ( email )
Los Angeles, CA
United States
Rodrigo S. Verdi (Contact Author)
Massachusetts Institute of Technology (MIT) ( email )
Sloan School of Management
100 Main Street E62-679
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)
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