The Effect of Mandatory Information Disclosure on Financial Constraints
69 Pages Posted: 11 Jan 2021 Last revised: 20 Aug 2023
Date Written: July 23, 2020
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: Suggested Citation