Does greater private firm disclosure affect public equity markets? A discussion of Kim and Olbert (2022)

One of the most significant capital market developments over the last two decades has been the growth of private capital markets—markets that raise capital outside of publicly traded venues and can face substantially less mandated public financial reporting. Understanding the causes and consequences of the relative growth of private capital markets is a first order research question. As private capital markets have grown, interest in regulating and researching private markets has increased. Research that is informative about the costs and benefits of regulating private capital markets should be in high demand. Kim and Olbert (2022, KO hereafter) dive into this arena to ask whether additional private firm disclosure affects public capital markets. KO find that as private firms disclose more financial statement information, the public equity holdings of mutual funds and ETFs decline. KO infer from their findings that increased private company disclosure results in negative pecuniary externalities for public companies. In this paper, I discuss KO's intriguing findings and suggest areas where research can build off and sharpen the inferences of this paper. In particular, future work can validate KO's measure of private company disclosure and consider the causal mechanism for investment in private firms.