Mandatory Financial Reporting Frequency and External Finance: Evidence From a Quasi-Natural Experiment

Hitotsubashi Management Innovation Research Center, No. 230

41 Pages Posted: 1 Jul 2019 Last revised: 18 Jan 2021

Date Written: December 25, 2020

Abstract

Using the unique institutional background of Japan, this study first examines the effects of the increase in the reporting frequency on corporate capital finance. Prior studies conclude that frequent financial reporting enhances capital market efficiency. Capital market efficiency improves corporate real activity efficiency. However, little literature investigates the relationship between reporting frequency and corporate real activities. Taking a Difference-in-Difference (DiD) approach, the study shows that the increase in the reporting frequency increases external finance but not bank loans. Second, the study finds that the positive effects of the increase in the reporting frequency are stronger in firms with a) financial constraints, b) ex-ante information asymmetry, and c) more external capital demand. The study also finds that the firms a) do not change the capital structure or the cash holding intensity, but b) invest more. Unlike prior literature, these findings suggest that the increase in the reporting frequency enhances firm activities by mitigating asymmetric information. The study sheds light on the bright side of frequent financial reporting in Japan.

Keywords: financial reporting frequency, quarterly reporting, quasi-private firms

JEL Classification: G31, G32, M41

Suggested Citation

Fujitani, Ryosuke, Mandatory Financial Reporting Frequency and External Finance: Evidence From a Quasi-Natural Experiment (December 25, 2020). Hitotsubashi Management Innovation Research Center, No. 230, Available at SSRN: https://ssrn.com/abstract=3410252 or http://dx.doi.org/10.2139/ssrn.3410252

Ryosuke Fujitani (Contact Author)

Tokyo Keizai University ( email )

Tokyo
Japan
185-8502 (Fax)

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