Equity Financing Incentive and Corporate Disclosure: New Causal Evidence
57 Pages Posted: 13 Jun 2019
Date Written: May 15, 2019
We provide causal evidence for the impact of equity financing incentive on corporate disclosure by exploring the 2008 seasoned equity offering deregulation which exogenously facilitates small firms’ access to public equity financing and increases their equity issuance incentives. We find that, benchmarking against control firms that are not affected by the deregulation, an average treatment firm that is affected by the deregulation issues more management earnings forecasts in the post-deregulation period than in the pre-deregulation period. The effect holds not only for treatment firms that issue public equity in the post-deregulation period but also for those that never issue public equity in the post-deregulation period and is stronger for the former. The effects are more pronounced for firms with greater equity financing needs and firms with higher information asymmetry in the equity market. Collectively, our evidence suggests that firms with higher equity issuance incentives provide more disclosures. The finding for treatment firms that never issue public equity in the post-deregulation period is particularly interesting because it indicates that an increase in equity issuance incentive per se, without an increase in actual issuance, could lead to more disclosures.
Keywords: Equity financing, Corporate disclosure, Management earnings forecast, Seasoned equity offering
JEL Classification: H26, M41
Suggested Citation: Suggested Citation