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Proprietary information and the choice between public and private debt

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Listed:
  • Kee‐Hong Bae
  • Yunhao Dai
  • Weiqiang Tan
  • Wenming Wang

Abstract

The high costs of disclosing confidential information lead firms with proprietary information to prefer private debt (bank loan) to public debt (corporate bond). We provide empirical evidence supporting this proposition using the staggered adoption of the inevitable disclosure doctrine (IDD) by US state courts that exogenously increased the value of proprietary information. The focal firms are significantly less likely to issue bonds after the IDD adoption. Financing through public debt decreases more for firms in which the protection of proprietary information is relatively more important.

Suggested Citation

  • Kee‐Hong Bae & Yunhao Dai & Weiqiang Tan & Wenming Wang, 2024. "Proprietary information and the choice between public and private debt," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(2), pages 1693-1721, June.
    • Handle: RePEc:bla:acctfi:v:64:y:2024:i:2:p:1693-1721
    DOI: 10.1111/acfi.13197
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