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The Benefits of Selective Disclosure: Evidence from Private Firms

Joan Farre-Mensa

Harvard Business School

June 5, 2015

Private firms’ ability to communicate confidentially with selected investors implies that valuation disagreements between firms and investors are larger at public firms than at private ones. Consistent with the notion that misvaluation concerns lead public firms to hoard cash to be able to optimize the timing of their equity issues, I show that small and medium public firms hold substantially more cash than similar-sized private ones. This difference is driven by public firms with high misvaluation exposure, which use their cash to avoid raising equity when they are hit by a cash flow shock and their equity is likely undervalued.

Number of Pages in PDF File: 75

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: June 6, 2015

Suggested Citation

Farre-Mensa, Joan, The Benefits of Selective Disclosure: Evidence from Private Firms (June 5, 2015). Available at SSRN: https://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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