Equity Financing Incentive and Corporate Disclosure: New Causal Evidence from SEO Deregulation
Review of Accounting Studies, forthcoming
49 Pages Posted: 13 Jun 2019 Last revised: 6 Dec 2021
Date Written: December 3, 2021
We provide new causal evidence for the impact of equity financing incentive on firms’ voluntary disclosure decisions by exploring the 2008 seasoned equity offering deregulation, which exogenously facilitates small firms’ access to public equity financing and increases their equity issuance incentives without changing their business and information environments. We argue that the heightened equity financing incentive due to the deregulation can motivate a firm to increase disclosures even in the period without actual equity issuance, because such disclosures, by signaling a commitment to disclosure, could reduce the cost of equity in case the firm issues equity in the future. Consistent with this argument, we find that, benchmarking against control firms that are not affected by the deregulation, an average treatment firm that is affected by the deregulation but does not issue equity provides more management earnings forecasts in the post-deregulation period. The effect is mainly driven by repeated forecasters and is more pronounced for firms with greater equity financing needs and firms with higher information asymmetry in the equity market.
Keywords: Equity financing, Corporate disclosure, Management earnings forecast, Seasoned equity offering
JEL Classification: H26, M41
Suggested Citation: Suggested Citation