Financial Reporting Regulation and Financing Decisions
Patricia L. Naranjo
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Rodrigo S. Verdi
Massachusetts Institute of Technology (MIT)
June 20, 2014
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 find that firms that are required to adopt IFRS are more likely to raise external financing post IFRS. Further, firms use the access to external financing to rebalance their capital structure. Our results are accentuated in countries with stronger institutions and across firms that benefit more from a reduction in adverse selection costs. 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: 56
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: June 21, 2014
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