The Effect of Mandatory Information Disclosure on Financial Constraints
55 Pages Posted: 11 Jan 2021
Date Written: July 23, 2020
This paper studies the effects of the mandatory implementation of a more informative disclosure regime on firms’ financial constraints and investment policies. I run a difference-in-difference analysis and find that firms moving from a voluntary use of the regime to a mandatory use increase debt issuance and investment in tangible assets, and reduce the level of discussion about difficulties in obtaining debt financing. At the same time, they report higher difficulties obtaining external finance through equity. These findings support the hypothesis that mandatory disclosure provides a commitment device to future disclosure but shuts down the signaling value of voluntary disclosure.
Keywords: Information Disclosure, Firm Financing, Corporate Regulation, Transparency
JEL Classification: G320, G380
Suggested Citation: Suggested Citation