The Effect of Mandatory Information Disclosure on Financial Constraints

72 Pages Posted: 11 Jan 2021 Last revised: 3 Jun 2022

See all articles by Felipe Cabezon

Felipe Cabezon

University of Southern California - Marshall School of Business

Date Written: July 23, 2020

Abstract

This paper examines the effects of mandatory disclosure on firms’ financial constraints and investment policies. I study a regulatory reform requiring firms of a certain size to file a standard 10K instead of choosing between the standard form and an abbreviated 10K. Companies that voluntarily used the standard 10K form before the reform become less debt-constrained but more equity-constrained afterward. These firms also issue more debt and increase their investment. The findings are consistent with mandatory disclosure providing a commitment device for future disclosure. However, this comes at the cost of losing the possibility of signaling high quality through voluntary disclosure.

Keywords: Information Disclosure, Firm Financing, Corporate Regulation, Transparency

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)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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