Proprietary Information and the Choice Between Public and Private Debt
57 Pages Posted: 26 Apr 2021 Last revised: 28 Apr 2021
Date Written: March 24, 2020
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: Suggested Citation