How Does Private Firm Disclosure Affect Demand for Public Firm Equity?

In 2020, over 98 percent of the 40 million firms that disclosed detailed financial statement information worldwide were privately owned. Given their economic importance, the social value (or cost) of regulating private firm disclosures is likely significant, and how much to regulate these disclosures has been a central topic of debate among regulators. Key to informing this debate is understanding the potential spillover effects of these disclosures. While emerging research has made progress in investigating both the determinants and firm-level costs and benefits of private firm disclosures, relatively little is known about the spillover effects of these disclosures.

In a … Read more

Feedback Effect of Disclosure Spillovers

Prior research has documented the existence of disclosure externalities, or information spillovers, between firms in a number of different settings. The idea is that when two firms are economically related, public disclosures by one firm can affect the stock price of the other firm. In a recent paper, we extend this idea by asking whether firms make disclosure decisions with the intention of affecting other firms’ stock prices. That is, we examine whether the presence of information spillovers influences firms’ disclosure decisions.

We investigate our question in the context of cash-based mergers and acquisitions. We test whether bidders disclose information … Read more