Research Examines the Effect of the Firm Information Environment on Financing Decisions

Newswise — Research by Susan Albring, associate professor of accounting at the Martin J. Whitman School of Management at Syracuse University, has been accepted for publication by Management Science. The paper, titled “Does The Firm Information Environment Influence Financing Decisions? A Test Using Disclosure Regulation,” finds that the quality of a firm’s information environment impacts its choice between debt and equity financing within the context of Regulation Fair Disclosure (Reg FD). Co-authors are Monica Banyi (University of Virginia), Dan Dhaliwal (University of Arizona), and Raynolde Pereira (University of Missouri). According to Albring, the goal of this work is to evaluate whether a firm's information environment impacts the choice between debt and equity financing within the context of Regulation Fair Disclosure (Reg FD), which prohibited the use of selective disclosure. The authors find that firms with high proprietary costs of public disclosure are more likely to use debt financing after Reg FD. They also evaluate changes in firm disclosure policy and find firms that adopted an expansive public disclosure policy are more likely to use equity financing. Overall, “the evidence is consistent with theory: firms with deteriorated firm information environments increase their use of less information-sensitive debt, while firms with improved information environments favor equity financing,” said Albring. About the Whitman SchoolThe Martin J. Whitman School of Management at Syracuse University was established as the College of Business Administration in 1919. In 1920, it was only the 16th collegiate business school in the nation to be accredited by the AACSB. Today, the Whitman School of Management includes programs in accounting, entrepreneurship, finance, management, marketing, real estate, retail management and supply chain management. In any given year, the Whitman School is home to nearly 2,000 doctoral, graduate and undergraduate students.