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
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: Suggested Citation