Does the Firm Information Environment Influence Financing Decisions? A Test Using Disclosure Regulation

Management Science, Forthcoming

Posted: 14 Jul 2015

See all articles by Susan Albring

Susan Albring

Syracuse University - Joseph I. Lubin School of Accounting

Monica Banyi

Gonzaga University

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Raynolde Pereira

University of Missouri at Columbia - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 2015

Abstract

Extant theory claims a firm's information environment impacts the choice between debt and equity financing. However, empirical evidence supporting this contention is limited. We evaluate this relation within the context of Regulation FD (Reg FD) which prohibited the use of selective disclosure. We find firms with high proprietary costs of public disclosure are more likely to resort to debt financing following the passage of Reg FD. This relation is not sensitive to whether a firm has relied on selective disclosure in the pre Reg FD regime. We also evaluate changes in firm disclosure policy and find firms that adopted an expansive public disclosure policy are more likely to turn to equity financing. Overall, our evidence is consistent with the pecking order theory: firms with deteriorated firm information environments increase their use of less information sensitive debt while firms with improved information environments favor the use of equity financing.

Keywords: information environment, financing decisions, disclosure, capital structure, Reg FD

JEL Classification: G18, G32

Suggested Citation

Albring, Susan M. and Banyi, Monica L. and Dhaliwal, Dan S. and Pereira, Raynolde, Does the Firm Information Environment Influence Financing Decisions? A Test Using Disclosure Regulation (July 14, 2015). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2630730

Susan M. Albring (Contact Author)

Syracuse University - Joseph I. Lubin School of Accounting ( email )

900 S. Crouse Avenue
Syracuse, NY 13244-2130
United States

Monica L. Banyi

Gonzaga University ( email )

United States

Dan S. Dhaliwal

University of Arizona - Department of Accounting (deceased)

Raynolde Pereira

University of Missouri at Columbia - School of Accountancy ( email )

337 Cornell Hall
Columbia, MO 65211
United States
573-882-6253 (Phone)

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