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Financial disclosure environment and the cash policy of private firms

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  • Marcelo Ortiz

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.

Suggested Citation

  • Marcelo Ortiz, 2020. "Financial disclosure environment and the cash policy of private firms," Economics Working Papers 1692, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1692
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    More about this item

    Keywords

    Disclosure regulation; cash policy; private firms.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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