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Firm Growth and Disclosure: An Empirical Analysis

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  • Khurana, Inder K.
  • Pereira, Raynolde
  • Martin, Xiumin

Abstract

Extant theoretical research posits that information asymmetry and agency issues affect the cost of external financing and hence impact the ability of firms to finance their growth opportunities. In contrast, the literature on disclosure policy posits that expanded and credible disclosure lowers the cost of external financing and improves a 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 net present value projects. This paper empirically evaluates this prediction using firm-level data over an 11-year period. As anticipated by theory, we find a positive relation between firm disclosure policy and the externally financed growth rate, after controlling for other influences.

Suggested Citation

  • Khurana, Inder K. & Pereira, Raynolde & Martin, Xiumin, 2006. "Firm Growth and Disclosure: An Empirical Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(02), pages 357-380, June.
  • Handle: RePEc:cup:jfinqa:v:41:y:2006:i:02:p:357-380_00
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    Cited by:

    1. Nazim Hussain, 2015. "Impact of Sustainability Performance on Financial Performance: An Empirical Study of Global Fortune (N100) Firms," Working Papers 1, Department of Management, Università Ca' Foscari Venezia.
    2. Etienne Farvaque & Catherine Refait-Alexandre & Dhafer Saïdane, 2011. "Corporate disclosure: A review of its (direct and indirect) benefits and costs," International Economics, CEPII research center, issue 128, pages 5-31.
    3. Ahmet Inci, 2011. "Capital Investment, Earnings, and Annual Stock Returns: Causality Relationships In China," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 1(2), pages 95-125, December.
    4. Johannes A. Skjeltorp & Elvira Sojli & Wing Wah Tham, 2011. "Sunshine trading: Flashes of trading intent at the NASDAQ," Working Paper 2011/17, Norges Bank.
    5. repec:uts:finphd:35 is not listed on IDEAS
    6. Al-Hadi, Ahmed & Taylor, Grantley & Hossain, Mahmud, 2015. "Disaggregation, auditor conservatism and implied cost of equity capital: An international evidence from the GCC," Journal of Multinational Financial Management, Elsevier, pages 66-98.
    7. Andrew Ellul & Tullio Jappelli & Marco Pagano & Fausto Panunzi, 2016. "Transparency, Tax Pressure, and Access to Finance," Review of Finance, European Finance Association, vol. 20(1), pages 37-76.
    8. Boubakri, Narjess & Saffar, Walid, 2016. "Culture and externally financed firm growth," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 502-520.
    9. Elshandidy, Tamer & Fraser, Ian & Hussainey, Khaled, 2013. "Aggregated, voluntary, and mandatory risk disclosure incentives: Evidence from UK FTSE all-share companies," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 320-333.
    10. Tong, Hui & Wei, Shang-Jin, 2014. "Does trade globalization induce or inhibit corporate transparency? Unbundling the growth potential and product market competition channels," Journal of International Economics, Elsevier, pages 358-370.
    11. Liu,Tingting & Ullah,Barkat & Wei,Zuobao & Xu,L. Colin, 2015. "The dark side of disclosure : evidence of government expropriation from worldwide firms," Policy Research Working Paper Series 7254, The World Bank.
    12. Schleicher, Thomas & Tahoun, Ahmed & Walker, Martin, 2010. "IFRS adoption in Europe and investment-cash flow sensitivity: Outsider versus insider economies," The International Journal of Accounting, Elsevier, vol. 45(2), pages 143-168, June.
    13. Chinmoy Ghosh & Le Sun, 2014. "Agency Cost, Dividend Policy and Growth: The Special Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 660-708, May.
    14. Ricardo Campos-Espinoza & Hanns de la Fuente-Mella & Berta Silva-Palavecinos & David Cademartori-Rosso, 2015. "Adopting the IFRS and its impact on reducing information asymmetry in the Chilean capital market," Netnomics, Springer, vol. 16(3), pages 193-204, December.
    15. Boubakri, Narjess & El Ghoul, Sadok & Saffar, Walid, 2015. "Firm growth and political institutions," Journal of Multinational Financial Management, Elsevier, pages 104-125.
    16. Narjess Boubakri & Sadok El Ghoul & Omrane Guedhami & Anis Samet, "undated". "The Effects of Analyst Forecast Properties on the Cost of Debt: International Evidence," Finance Working Papers 15-12/2013, School of Business Administration, American University of Sharjah.

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