Information, Financing, and Investment

58 Pages Posted: 12 Jan 2018 Last revised: 9 Jul 2020

See all articles by Andrew Bird

Andrew Bird

Chapman University - The George L. Argyros School of Business & Economics

Aytekin Ertan

London Business School

Stephen A. Karolyi

Office of the Comptroller of the Currency

Thomas Ruchti

Government of the United States of America - Office of Financial Research

Date Written: July 7, 2020

Abstract

By allowing investors to efficiently allocate capital, developed financial markets promote economic growth. We revisit a key component of financial market development, namely financial reporting standards, to identify a channel underpinning this link. We focus on introductions of new financial reporting standards and construct a novel text-based, firm-level measure of sensitivity to these standards. Relative to insensitive firms, sensitive firms reduce securities issuance by 11.4% and, despite compensating with internal sources of funds, cut investment by 10.8% after standards. These findings demonstrate that new standards trigger a substantial reallocation of capital through financial markets.

Keywords: capital markets regulation, capital allocation, financing, investment

JEL Classification: G18, G30, O16

Suggested Citation

Bird, Andrew and Ertan, Aytekin and Karolyi, Stephen A. and Ruchti, Thomas, Information, Financing, and Investment (July 7, 2020). Available at SSRN: https://ssrn.com/abstract=3098916 or http://dx.doi.org/10.2139/ssrn.3098916

Andrew Bird

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States

Aytekin Ertan

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
00442070008131 (Phone)

HOME PAGE: http://www.aytekinertan.com

Stephen A. Karolyi

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Thomas Ruchti (Contact Author)

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

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