Do Public Financial Statements Influence Venture Capital and Private Equity Financing? 

Abstract

We study whether the availability of public audited financial statements influences the probability of private firms receiving private firm equity financing. Using a setting in the European Union with plausibly exogenous variability in the extent to which private firms issue public financial reports, we find that private firms subject to public reporting requirements have a higher probability of obtaining private equity (PE) financing. In addition, we show that the increase in PE financing occurs in industries in which PE funds have prior experience. Last, we show that our findings also extend to other forms of private firm financing such as private firm acquisitions and venture capital. Our evidence highlights the importance of public financial statements in the decision making of private equity investors, an important and under-studied segment of the private firm financing market.

Keywords: Private equity, venture capital, financial reporting regulation, private firms

JEL Classification: M41, M2, G24, G34