External Financing and Voluntary Disclosure: Is There a Difference between Equity-Issuing Firms and Debt-Issuing Firms?

Abstract

This paper examines whether there are differences in the voluntary disclosure strategies of firms choosing different sources of external financing. I hypothesize that the different information demands of equity and debt investors will influence the likelihood and characteristics of firms' voluntary disclosures. I test this hypothesis using management earnings forecast data for a large sample of debt-issuing, equity-issuing, and a control sample of non-issuing firms. I find that the likelihood of forecasting is not associated with the decision to raise external funds and the likelihood of making a forecast is not associated with the type of external financing transaction. However, I do find that equity-issuing firms release earnings forecasts for longer time horizons regardless of the news content of the disclosure. These results are robust to quiet-period regulations. The above results hold for an alternative sample that consists of shelf-registrants for equity issues and debt issues and their control groups. This evidence on the characteristics of firms' voluntary disclosures is important because it indicates that the firms tailor their disclosures to meet the different information demands of investors based on the financing choice.