Going Public or Staying Private: The Cost of Mandated Transparency

39 Pages Posted: 17 Oct 2019 Last revised: 10 Apr 2021

See all articles by Yifeng Guo

Yifeng Guo

Columbia University - Columbia Business School, Finance

Joshua Mitts

Columbia Law School

Date Written: October 7, 2019

Abstract

Public markets are transparent institutions, where disclosure is mandatory and order flow observable. We show that transparency can lead to insufficient information acquisition and inefficient investment. Our model links a firm's preference for public markets to the quality of disclosure metrics. When short-term signals diverge from the long-run value of a project, entrepreneurs prefer opaque private markets where investors can bargain over the costs of acquiring information. Imperfect communication is a mechanism by which mandatory disclosure may destroy value, leading firms to remain private.

Keywords: private market, public market, disclosure

JEL Classification: G14, G18, G24, G38

Suggested Citation

Guo, Yifeng and Mitts, Joshua, Going Public or Staying Private: The Cost of Mandated Transparency (October 7, 2019). Columbia Business School Research Paper Forthcoming, Columbia Law and Economics Working Paper No. 649, Available at SSRN: https://ssrn.com/abstract=3465919 or http://dx.doi.org/10.2139/ssrn.3465919

Yifeng Guo (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

NY
United States

Joshua Mitts

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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