Proprietary Information and the Choice Between Public and Private Debt

57 Pages Posted: 26 Apr 2021 Last revised: 28 Apr 2021

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

Yunhao Dai

Huazhong University of Science and Technology (Formerly Tongi Medical University)

Weiqiang Tan

Education University of Hong Kong; The Education University of Hong Kong

Wenming Wang

Zhejiang University

Date Written: March 24, 2020

Abstract

The high costs of disclosing confidential information lead firms with proprietary information to prefer private debt (bank loan) to public debt (corporate bond). We provide empirical evidence supporting this proposition using the staggered adoption of the inevitable disclosure doctrine (IDD) by U.S. state courts that exogenously increased the value of proprietary information. The focal firms are significantly less likely to issue bonds after the IDD adoption. Financing through public debt decreases more for firms in which the protection of proprietary information is relatively more important.

Keywords: inevitable disclosure doctrine, proprietary information, financing choice

JEL Classification: G32, G30

Suggested Citation

Bae, Kee-Hong and Dai, Yunhao and Tan, Weiqiang and Tan, Weiqiang and Wang, Wenming, Proprietary Information and the Choice Between Public and Private Debt (March 24, 2020). Available at SSRN: https://ssrn.com/abstract=3833067 or http://dx.doi.org/10.2139/ssrn.3833067

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Yunhao Dai

Huazhong University of Science and Technology (Formerly Tongi Medical University) ( email )

1037 Luoyu Rd
Wuhan, Hubei 430074
China

Weiqiang Tan

Education University of Hong Kong ( email )

Dept of Social Sciences
Education University of Hong Kong
Tai Po, NT 11111
Hong Kong

The Education University of Hong Kong ( email )

Tai Po
Hong Kong
Hong Kong

Wenming Wang

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
47
Abstract Views
209
PlumX Metrics