Equity Financing Incentive and Corporate Disclosure: New Causal Evidence from SEO Deregulation
60 Pages Posted: 13 Jun 2019 Last revised: 22 May 2020
Date Written: May 21, 2020
We provide new 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, and the effect is more pronounced for firms with greater equity financing needs and firms with higher information asymmetry in the equity market. More importantly, we show that these findings hold for treatment firms that never issue public equity in the post-deregulation period, which indicates that an increase in equity issuance incentive per se, without an increase in actual issuance, could lead to more disclosures. Increased disclosures in the period when no equity is issued, by signaling to the market a commitment to disclosures, could reduce the cost of equity when the firm issues equity in the end.
Keywords: Equity financing, Corporate disclosure, Management earnings forecast, Seasoned equity offering
JEL Classification: H26, M41
Suggested Citation: Suggested Citation