Private Equity Investments and Disclosure Policy

In the current study, we dynamically analyze unlisted firms' voluntary disclosure decisions around private equity (PE) participation. First, we disentangle the role of disclosure in attracting PE investments. In addition, we examine the extent to which a firm's disclosure policy is affected by the changing corporate setting and intensified corporate governance after having received PE. We find no evidence that firms would employ increased disclosure to signal their quality in the years preceding the PE financing. However, we document a significant switch to increased financial disclosure from the PE investment year onwards, consistent with the hypothesis that PE investor presence positively affects portfolio firms' disclosure decisions. Further, we show that the proportional PE ownership stake is positively related to increased disclosure, but only at very high ownership levels. We explain these results in that both internal and external information demands call for higher public disclosure in PE firms. We conclude that the changing information environment resulting from a PE investment stimulates increased public financial disclosure. Our results contribute to illustrate how an indisputable change in governance resulting from a PE investment affects inter-temporal corporate disclosure decisions in unlisted firms.