The Effect of Mandatory Information Disclosure on Financial Constraints

69 Pages Posted: 11 Jan 2021 Last revised: 20 Aug 2023

See all articles by Felipe Cabezon

Felipe Cabezon

Virginia Tech - Pamplin College of Business

Date Written: July 23, 2020

Abstract

This paper examines the effects of mandatory disclosure systems on firms’ financial constraints and investment policies. I study a regulatory reform that eliminated the special disclosure system of small firms and integrated it into the standard disclosure system of large firms. Companies that voluntarily used the standard system before the reform become less debt-constrained, issue more debt and increase their investment. The findings are consistent with mandatory disclosure providing a commitment device for future disclosure that reduces the agency cost of debt.

Keywords: Information Disclosure, Financial Constraints, Commitment

JEL Classification: G320, G380

Suggested Citation

Cabezon, Felipe, The Effect of Mandatory Information Disclosure on Financial Constraints (July 23, 2020). Available at SSRN: https://ssrn.com/abstract=3725099 or http://dx.doi.org/10.2139/ssrn.3725099

Felipe Cabezon (Contact Author)

Virginia Tech - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

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