Financial Reporting Regulation and Financing Decisions
56 Pages Posted: 17 Sep 2012 Last revised: 7 Apr 2017
Date Written: April 6, 2017
We study the influence of a major reform in financial reporting regulation 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 financing decisions around the new regulation depending on their ex-ante debt capacity, allowing them to adjust their capital structure. Our results are accentuated across firms facing higher adverse selection costs and are consistent with the new regulation reducing underinvestment among constrained firms. Our findings highlight the importance of financial reporting regulation in explaining financing as well as investment policies, and provide insights into which firms are more likely to benefit from it.
Keywords: Financial Reporting Regulation, Financing Decisions, Information Asymmetry, Capital Structure, International Accounting, IAS, IFRS
JEL Classification: G15, G30, G32, M41
Suggested Citation: Suggested Citation