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

Abstract

We study whether the availability of public and audited financial statements influences the probability of private firms receiving private firm equity financing. Using a setting in the EU 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 financing. In addition, early stage private firms subject to auditing requirements are associated with higher venture capital financing. 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