Disclosure, Hold-up, and External Finance: Evidence from Private Firms

50 Pages Posted: 26 Jul 2015 Last revised: 19 Dec 2016

Andrew Bird

Carnegie Mellon University - Tepper School of Business

Stephen A. Karolyi

Carnegie Mellon University - Tepper School of Business

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business

Date Written: December 16, 2016

Abstract

We investigate private borrowers incentives to publicly disclose financial information in loan agreements in anticipation of public equity or debt issuance. Voluntary disclosure of sales and key financial ratios reduces lender hold-up, reduces financing costs and increases public bond and equity issuance amounts by 9.9% and 12.2%, respectively. We show that our results are unlikely to be driven by selection on unobservable borrower quality. Overall, this evidence suggests that voluntary disclosure can mitigate information asymmetry and reduce financial constraints for young firms.

Keywords: voluntary disclosure, initial public offering, hold-up, private firms, loans

Suggested Citation

Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas G., Disclosure, Hold-up, and External Finance: Evidence from Private Firms (December 16, 2016). Available at SSRN: https://ssrn.com/abstract=2635681 or http://dx.doi.org/10.2139/ssrn.2635681

Andrew Bird

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Stephen A. Karolyi

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
4122682909 (Phone)

Thomas G. Ruchti (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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