Proprietary costs and the equity financing choice

Ioannis V. Floros (), Konduru Sivaramakrishnan () and Rustam Zufarov ()
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Ioannis V. Floros: UW-Milwaukee
Konduru Sivaramakrishnan: Rice University
Rustam Zufarov: University of Illinois at Chicago

Review of Accounting Studies, 2024, vol. 29, issue 2, No 8, 1276-1319

Abstract: Abstract We develop a firm-level private information index with three unique features. First, the index is a direct measure of the nature and magnitude of private information that is proprietary. Second, it is multi-dimensional. Third, it is not specific to any setting. We conduct several tests to validate this index against firm-specific and industry-level proprietary cost proxies. We then use it to examine the role of proprietary information in a firm’s equity financing choice between private investments in public equity (PIPEs) and seasoned equity offerings (SEOs). In this context, the proprietary cost hypothesis posits that firms wanting to avoid public dissemination of sensitive private information can better do so by choosing PIPEs. Our tests strongly support the hypothesis. The results are robust to alternate index specifications and other factors that influence this choice.

Keywords: Corporate disclosures; Proprietary cost; SEO; PIPE (search for similar items in EconPapers)
JEL-codes: G32 G38 L1 M41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-022-09745-6

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