Disclosure Spillover from Going-Private Activity

63 Pages Posted: 13 Apr 2022 Last revised: 26 Apr 2024

See all articles by Lisa A. Hinson

Lisa A. Hinson

University of Florida - Warrington College of Business Administration

Jeffery Piao

University of Missouri at Columbia - School of Accountancy

Date Written: April 4, 2024

Abstract

The United States has a bifurcated system of disclosure requirements for public versus private firms. Public firms that go private continue to operate yet are no longer subject to SEC financial reporting requirements. This study examines peer firms’ disclosure responses following the lost information spillover from going-private events. We first support the lost information transfer, finding evidence that analyst forecasts of peer firms’ earnings are less accurate and more disperse and that peer liquidity is lower immediately following going-private transactions. In response to the deteriorated information environments after going-private activity, we find that industry peers increase disclosure quality. Analyses of peers’ future information environments suggest that peers that enhance disclosure quality regain some informational benefits. Consistent with theories on disclosure incentives, the disclosure response is most evident in firms that rely more on intra-industry information spillover and firms with lower competitive concerns. In addition, enhanced disclosure quality is most evident in the firms with the greatest deteriorations in their information environments after going-private activity, supporting the link between the lost information transfer and the disclosure response. Supplemental analyses on other capital market transactions that increase or do not change public information (IPOs and private mergers, respectively) support the relation between changes in intra-industry information spillover and peer disclosure responses. Our study examines an underexplored aspect of going-private transactions – the loss of public disclosure – and finds that the lost information imposes a negative externality on peers that remain public that prompts peers to increase self-disclosure to regain informational benefits.

Keywords: going private, information spillover, information externality, peer effects, mergers

JEL Classification: D80; L22; M41

Suggested Citation

Hinson, Lisa A. and Piao, Jeffery, Disclosure Spillover from Going-Private Activity (April 4, 2024). Available at SSRN: https://ssrn.com/abstract=4073023 or http://dx.doi.org/10.2139/ssrn.4073023

Lisa A. Hinson (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Jeffery Piao

University of Missouri at Columbia - School of Accountancy ( email )

340 Cornell Hall
Columbia, MO 65211
United States

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