Financial Reporting Regulation and Financing Decisions
Patricia L. Naranjo
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
Date posted: September 17, 2012 ; Last revised: July 17, 2015
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