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Proprietary costs and the equity financing choice

Author

Listed:
  • Ioannis V. Floros

    (UW-Milwaukee)

  • Konduru Sivaramakrishnan

    (Rice University)

  • Rustam Zufarov

    (University of Illinois at Chicago)

Abstract

We develop a firm-level private information index with three unique features. First, the index is a direct measure of the nature and magnitude of private information that is proprietary. Second, it is multi-dimensional. Third, it is not specific to any setting. We conduct several tests to validate this index against firm-specific and industry-level proprietary cost proxies. We then use it to examine the role of proprietary information in a firm’s equity financing choice between private investments in public equity (PIPEs) and seasoned equity offerings (SEOs). In this context, the proprietary cost hypothesis posits that firms wanting to avoid public dissemination of sensitive private information can better do so by choosing PIPEs. Our tests strongly support the hypothesis. The results are robust to alternate index specifications and other factors that influence this choice.

Suggested Citation

  • Ioannis V. Floros & Konduru Sivaramakrishnan & Rustam Zufarov, 2024. "Proprietary costs and the equity financing choice," Review of Accounting Studies, Springer, vol. 29(2), pages 1276-1319, June.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:2:d:10.1007_s11142-022-09745-6
    DOI: 10.1007/s11142-022-09745-6
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    More about this item

    Keywords

    Corporate disclosures; Proprietary cost; SEO; PIPE;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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