Disclosure, Hold-up, and External Finance : Evidence from Private Firms

We investigate private borrowers incentives to publicly disclose financial information in loan agreements in anticipation of public equity or debt issuance. Voluntary disclosure of sales and key financial ratios reduces lender hold-up, reduces financing costs and increases public bond and equity issuance amounts by 9.9% and 12.2%, respectively. We show that our results are unlikely to be driven by selection on unobservable borrower quality. Overall, this evidence suggests that voluntary disclosure can mitigate information asymmetry and reduce financial constraints for young firms