Do Public Financial Statements Influence Venture Capital and Private Equity Financing?
52 Pages Posted: 25 Jun 2021 Last revised: 28 Jul 2022
Date Written: July 27, 2022
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: Suggested Citation