Hostname: page-component-848d4c4894-4hhp2 Total loading time: 0 Render date: 2024-05-14T18:56:54.110Z Has data issue: false hasContentIssue false
  • English
  • Français

Firm Growth and Disclosure: An Empirical Analysis

Published online by Cambridge University Press:  06 April 2009

Inder K. Khurana ,
Raynolde Pereira  and
Xiumin Martin
Inder K. Khurana
Affiliation:
khuranai@missouri.edu, School of Accountancy, College of Business, University of Missouri, Columbia, MO 65211.
Raynolde Pereira
Affiliation:
pereirar@u.missouri.edu, School of Accountancy, College of Business, University of Missouri, Columbia, MO 65211.
Xiumin Martin
Affiliation:
xxz55@mizzou.edu, School of Accountancy, College of Business, University of Missouri, Columbia, MO 65211.
Get access Rights & Permissions [Opens in a new window]

Abstract

Extant theoretical research posits that information asymmetry and agency issues affect the cost of external financing and hence impact the ability of firms to finance their growth opportunities. In contrast, the literature on disclosure policy posits that expanded and credible disclosure lowers the cost of external financing and improves a firm's ability to pursue potentially profitable projects. An empirical implication is that disclosure can help firms grow by relaxing external financing constraints, thereby allowing capital to flow to positive net present value projects. This paper empirically evaluates this prediction using firm-level data over an 11-year period. As anticipated by theory, we find a positive relation between firm disclosure policy and the externally financed growth rate, after controlling for other influences.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 2 , June 2006 , pp. 357 - 380
Copyright
Copyright © School of Business Administration, University of Washington 2006

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Admati, A., and Pfleiderer, P.. “Forcing Firms to Talk: Financial Disclosure Regulation and Externalities.” Review of Financial Studies, 15 (2000), 479–519.CrossRefGoogle Scholar
Almeida, H., and Campello, M.. “Financial Constraints and Investment-Cash Flow Sensitivities: New Research Directions.” Working Paper, New York Univ. and Univ. of Illinois (2002).Google Scholar
Alti, A. “How Sensitive is Investment to Cash Flow When Financing is Frictionless?” Journal of Finance, 58 (2003), 707–722.CrossRefGoogle Scholar
Association for Investment Management and Research. Corporate Information Committee Report of Association for Investment Management and Research Corporate Information Committee. New York, NY: AIMR, 1981–1995.Google Scholar
Bamber, L., and Cheon, Y.. “Discretionary Management Earnings Forecast Disclosure: Antecedents and Outcomes Associated with Forecast Venue and Forecast Specificity Choices.” Journal of Accounting Research, 36 (1998), 167–190.CrossRefGoogle Scholar
Belsley, D.; Kuh, E.; and Welsch, R.. Regression Diagnostics, Identifying Influential Data and Sources of Collinearity. New York, NY: John Wiley (1980).CrossRefGoogle Scholar
Bernard, V. “Cross-Sectional Dependence and Problems in Inference in Market-Based Accounting Research.” Journal of Accounting Research, 25 (1987), 1–48.CrossRefGoogle Scholar
Bhattacharya, S., and Chiesa, G.. “Proprietary Information, Financial Intermediation, and Research Incentives.” Journal of Financial Intermediation, 4 (1995), 328–357.CrossRefGoogle Scholar
Botosan, C. “Disclosure Level and the Cost of Equity Capital.” Accounting Review, 72 (1997), 323–349.Google Scholar
Botosan, C., and Plumlee, M.. “A Reexamination of Disclosure Level and the Expected Cost of Equity Capital.” Journal of Accounting Research, 40 (2002), 21–40.CrossRefGoogle Scholar
Bushman, R., and Smith, A.. “Financial Accounting Information and Corporate Governance.” Journal of Accounting and Economics, 32 (2001), 237–333.CrossRefGoogle Scholar
Bushman, R., and Smith, A.. “Transparency, Financial Accounting Information, and Corporate Governance.” FRBNY Economic Policy Review, 9 (2003), 65–87.Google Scholar
Campbell, S. “Optimal Investment Financing Decisions and the Value of Confidentiality.” Journal of Financial and Quantitative Analysis, 14 (1979), 913–924.Google Scholar
Cleary, S. “The Relationship between Firm Investment and Financial Status.” Journal of Finance, 54 (1999), 673–692.Google Scholar
Demirguc-Kunt, A., and Maksimovic, V.. “Law, Finance, and Firm Growth.” Journal of Finance, 53 (1998), 2107–2137.CrossRefGoogle Scholar
Demirguc-Kunt, A., and Maksimovic, V.. “Funding Growth in Bank-Based and Market-Based Financial Systems: Evidence from Firm-Level Data.” Journal of Financial Economics, 65 (2002), 337–363.CrossRefGoogle Scholar
Erickson, T., and Whited, T.. “Measurement Error and the Relationship between Investment and Q.” Journal of Political Economy, 108 (2000), 1027–1057.CrossRefGoogle Scholar
Fairfield, P., and Yohn, T.. “Using Asset Turnover and Profit Margin to Forecast Changes in Profitability.” Review of Accounting Studies, 6 (2001), 371–385.CrossRefGoogle Scholar
Fazzari, S.; Hubbard, R.; and Petersen, B.. “Financing Constraints and Corporate Investment.” Brookings Papers on Economic Activity, 1 (1988), 141–195.CrossRefGoogle Scholar
Healy, P.; Hutton, A.; and Palepu, K.. “Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure.” Contemporary Accounting Research, 16 (1999), 485–520.CrossRefGoogle Scholar
Jensen, M., and Meckling, W.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 3 (1976), 305–360.CrossRefGoogle Scholar
Judge, G.; Griffith, W.; Hill, R.; and Lee, T.. The Theory and Practice of Econometrics. New York, NY: John Wiley (1980).Google Scholar
Kaplan, R., and Zingales, L.. “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?“ Quarterly Journal of Economics, 112 (1997), 169–215.CrossRefGoogle Scholar
Korajczyk, R., and Levy, A.. “Capital Structure Choice: Macroeconomic Conditions and Financial Constraints.” Journal of Financial Economics, 68 (2003), 75–109.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “Investor Protection and Corporate Governance.” Journal of Financial Economics, 58 (2000a), 3–27.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. Agency Problems and Dividend Policies around the World.” Journal of Finance, 55 (2000b), 1–33.CrossRefGoogle Scholar
Lang, M. “Discussion of Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosure.” Contemporary Accounting Research, 16 (1999), 521–534.CrossRefGoogle Scholar
Lang, M., and Lundholm, R.. “Cross-Sectional Determinants of Analyst Ratings of Corporate Disclosures.” Journal of Accounting Research, 31 (1993), 246–271.CrossRefGoogle Scholar
Lang, M., and Lundholm, R.. “Corporate Disclosure Policy and Analyst Behavior.” Accounting Review, 71 (1996), 467–492.Google Scholar
Lang, M., and Lundholm, R.. “Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?” Contemporary Accounting Research, 17 (2000), 623–662.CrossRefGoogle Scholar
Leuz, C., and Verrecchia, R.. “The Economic Consequences of Increased Disclosure.” Journal of Accounting Research, 38 (2000), 91–124.CrossRefGoogle Scholar
Levine, R., and Zervos, S.. “Stock Markets, Banks, and Economic Growth.” American Economic Review, 88 (1998), 537–558.Google Scholar
Lundholm, R., and Meyers, L.. “Bring the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation.” Journal of Accounting Research, 40 (2002), 809–839.CrossRefGoogle Scholar
Myers, S. “Determinants of Corporate Borrowing.” Journal of Financial Economics, 5 (1977), 147–175.CrossRefGoogle Scholar
Myers, S., and Majluf, N.. “Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have.” Journal of Financial Economics, 13 (1984), 187–221.CrossRefGoogle Scholar
Nagar, V.; Nanda, D.; and Wysocki, P.. “Discretionary Disclosures and Stock-Based Incentives.” Journal of Accounting and Economics, 34 (2003), 383–309.CrossRefGoogle Scholar
Neter, J.; Kutner, M.; Nachtsheim, C.; and Wasserman, W.. Applied Linear Statistical Models. Chicago, IL: Irwin (1996).Google Scholar
Poterba, J. “Comment on Financing Constraints and Corporate Investment.” Brookings Papers on Economic Activity, 1988, 200–204.CrossRefGoogle Scholar
Rajan, R. “Insiders and Outsiders: The Choice between Informed and Arm's Length Debt.” Journal of Finance, 47 (1992), 1367–1400.Google Scholar
Rajan, R., and Zingales, L.. “Financial Dependence and Growth.” American Economic Review, 88 (1998), 559–586.Google Scholar
Sengupta, P. “Corporate Disclosure Quality and the Cost of Debt.” Accounting Review, 73 (1998), 459–474.Google Scholar
Stein, J. “Agency Costs, Information, and Capital Investment.” In Handbook of the Economics of Finance, Constantinides, G., Harris, M., and Stulz, R., eds. Boston, MA: Elsevier/North-Holland (2003).Google Scholar
Teoh, S. H.; Welch, I.; and Wong, T. J.. “Earnings Management and the Long-Run Market Performance of Initial Public Offerings.” Journal of Finance, 53 (1998a), 1935–1974.CrossRefGoogle Scholar
Teoh, S. H.; Welch, I.; and Wong, T. J.. “Earnings Management and the Underperformance of Seasoned Equity Offerings.” Journal of Financial Economics, 50 (1998b), 63–99.CrossRefGoogle Scholar
Verrecchia, R. “Discretionary Disclosure.” Journal of Accounting and Economics, 5 (1983), 179–194.CrossRefGoogle Scholar
Verrecchia, R. “Essays on Disclosure.” Journal of Accounting and Economics, 32 (2001), 97–180.CrossRefGoogle Scholar
Welker, M. “Disclosure Policy, Information Asymmetry and Liquidity in Equity Markets.” Contemporary Accounting Research, 11 (1995), 801–827.CrossRefGoogle Scholar
White, H. “A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity.” Econometrica, 4 (1980), 817–838.CrossRefGoogle Scholar
Yu, F. “Accounting Transparency and the Term Structure of Credit Spreads.” Journal of Financial Economics, 75 (2005), 223–242.CrossRefGoogle Scholar