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

52 Pages Posted: 25 Jun 2021 Last revised: 28 Jul 2022

See all articles by Brian K. Baik

Brian K. Baik

Harvard Business School

Natalie Berfeld

Boston College - Carroll School of Management

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Date Written: July 27, 2022

Abstract

We study whether public financial statement disclosures of private firms influence the probability of raising venture capital (VC) and private equity (PE) financing. In particular, we propose that private firms’ public financial statements can help the VC/PE search process by providing a less costly screening tool to identify potential targets at the pre-investment stage. Using two complementary settings, we find that an increase in financial statement availability is associated with an increase in the probability of a private firm obtaining VC/PE financing. In addition, we show that our findings generalize to acquisitions of private firms, which can feature significant search costs. Our evidence highlights the importance of public financial statements in the decision-making of private investors and suggests a search cost-based channel for the effects.

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

JEL Classification: M41, M2, G24, G34

Suggested Citation

Baik, Brian and Berfeld, Natalie and Verdi, Rodrigo S., Do Public Financial Statements Influence Venture Capital and Private Equity Financing? (July 27, 2022). Available at SSRN: https://ssrn.com/abstract=3867958 or http://dx.doi.org/10.2139/ssrn.3867958

Brian Baik

Harvard Business School ( email )

Morgan Hall 378, Soldiers Field Road
Boston, MA 02163
United States

Natalie Berfeld

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

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