Paper #1692

Title:

Financial disclosure environment and the cash policy of private firms

Author:

Marcelo Ortiz

Date:

January 2020

Abstract:

This paper proposes that private firms facing stronger financial constraints benefit from greater transparency in the financial disclosure environment since it facilitates the estimation of future liquidity needs. I test this idea using a sample of private firms from 12 European countries with similar disclosure regulations for public and private firms. Consistently, I find that private firms hold less cash when they operate in industries with a higher fraction of peers disclosing extended financial reports. Further, I find that the decrease in cash holding is more pronounced in industries with higher cash-deficit risk and for younger firms. These findings are mainly explained by the disclosures of other private peers, which provide a means for learning from firms with similar liquidity constraints.

Keywords:

Disclosure regulation, cash policy, private firms.

JEL codes:

M41, M48, G32.

Area of Research:

Finance and Accounting

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