Firm Growth and Disclosure: An Empirical Analysis

Posted: 2 Nov 2005

See all articles by Xiumin Martin

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

Raynolde Pereira

University of Missouri at Columbia - School of Accountancy

Abstract

Extant theoretical research posits that information asymmetry and agency issues affect the cost of external financing and hence impact firms' ability to finance its growth opportunities. In contrast, the literature on disclosure policy posits that an expanded and credible disclosure lowers the cost of external financing and improves 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 NPV projects. This paper empirically evaluates this prediction using firm-level data over an eleven-year period. As anticipated by theory, we find a positive relation between firm disclosure policy and externally financed growth rate, after controlling for other influences.

Keywords: disclosure, external financing, firm growth

JEL Classification: G12, G31, M41, M45

Suggested Citation

Martin, Xiumin and Khurana, Inder and Pereira, Raynolde, Firm Growth and Disclosure: An Empirical Analysis. Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=833848

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

Raynolde Pereira

University of Missouri at Columbia - School of Accountancy ( email )

337 Cornell Hall
Columbia, MO 65211
United States
573-882-6253 (Phone)

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