How Does Better Access to Public Firm Disclosures Affect IPO Firm Financing?

60 Pages Posted: 7 Dec 2021 Last revised: 23 May 2022

See all articles by Shawn Shi

Shawn Shi

Stanford Graduate School of Business

Date Written: May 20, 2022

Abstract

I study how improved access to public firm disclosures affects private firm financing through IPOs. Theory indicates that although improved access to public firm disclosures can reduce IPO investors’ valuation uncertainty, it can also lead to increased adverse selection. This tension leaves the net effect of public disclosure improvements on IPO pricing uncertain. I exploit the introduction of EDGAR to examine this question empirically. The results show IPO firm underpricing decreases systematically as more public peer firms adopt EDGAR. This finding is stronger when IPO investors face more valuation uncertainty, when peer firms’ information quality is high, when alternative information sources are scarce, and when peer disclosures contain more industry-wide information. Increased equity research coverage of public peers also contributes to this finding. Together, the results suggest better dissemination of public firm disclosures can reduce frictions for private firms seeking to procure equity capital.

Keywords: disclosure processing costs, externalities, capital formation

JEL Classification: G14, G12, G38

Suggested Citation

Shi, Shawn, How Does Better Access to Public Firm Disclosures Affect IPO Firm Financing? (May 20, 2022). Available at SSRN: https://ssrn.com/abstract=3978187 or http://dx.doi.org/10.2139/ssrn.3978187

Shawn Shi (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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