Equity Financing Incentive and Corporate Disclosure: New Causal Evidence

57 Pages Posted: 13 Jun 2019

See all articles by Ningzhong Li

Ningzhong Li

University of Texas at Dallas

Xiaolu Zhou

University of Texas at Dallas

Date Written: May 15, 2019

Abstract

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

Li, Ningzhong and Zhou, Xiaolu, Equity Financing Incentive and Corporate Disclosure: New Causal Evidence (May 15, 2019). Available at SSRN: https://ssrn.com/abstract=3396198 or http://dx.doi.org/10.2139/ssrn.3396198

Ningzhong Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Xiaolu Zhou

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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