When Does Information Disclosure Help Innovation? Evidence from Blue Sky Laws

43 Pages Posted: 15 Apr 2020

See all articles by Cagri Akkoyun

Cagri Akkoyun

Analysis Group, Inc. - Dallas Office

Nuri Ersahin

Michigan State University-Department of Finance

Date Written: April 6, 2020

Abstract

Using historical firm-level patent and accounting data, we analyze how information disclosure affects firm innovation. To establish a causal link, we use the enactment of blue sky laws, the first form of investor protection laws, across some U.S. states at the beginning of the 20th century, when there was no federal regulation. These laws required firms to disclose information before selling their securities and increased penalties in case of financial fraud. Using archival records, we document that young innovative firms (startups) had a large share of intangible assets and relied heavily on equity financing (venture capital). In a difference-in-differences setting, we show that following the enactment of these laws, innovative firms that previously had limited access to external finance raised more funds and increased their innovation activity. Our results suggest that disclosure requirements help innovation when the information environment is weak to begin with.

Keywords: Information Asymmetry, Investor Protection, Venture Capital, Innovation

JEL Classification: G24, K22, O12, O32

Suggested Citation

Akkoyun, Cagri and Ersahin, Nuri, When Does Information Disclosure Help Innovation? Evidence from Blue Sky Laws (April 6, 2020). Available at SSRN: https://ssrn.com/abstract=3569345 or http://dx.doi.org/10.2139/ssrn.3569345

Cagri Akkoyun

Analysis Group, Inc. - Dallas Office ( email )

2911 Turtle Creek Boulevard
Suite 600
Dallas, TX 75219
United States

Nuri Ersahin (Contact Author)

Michigan State University-Department of Finance ( email )

East Lansing, MI 48824
United States
8478686532 (Phone)

HOME PAGE: http://sites.google.com/site/nuriersahin/

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