Mandatory Financial Reporting Frequency and External Financing: Evidence from a Quasi-Natural Experiment

ABSTRACT

Based on Japan’s institutional background, this study examines the effects of increased reporting frequency on corporate capital financing. Prior studies have found that frequent financial reporting reduces capital market frictions and alters corporate investment behavior. However, the relationship between these two findings remains unclear. Specifically, the effect of the reduction in market frictions attributable to more frequent reporting on corporate financing decisions has not been determined. Using a difference-in-differences (DiD) approach, this study shows that more frequent reporting increases external financing but not bank loans. Moreover, increased reporting frequency has a stronger positive effect on firms with financial constraints, ex ante information asymmetry, and greater external capital demand. Furthermore, this study examines how firms use raised capital and finds that they do not change their capital structure or cash-holding intensity but invest more. These findings suggest that increased reporting frequency enhances firm activity by mitigating asymmetric information.

Data Availability: Data are publicly accessible.

JEL Classifications: G31; G32; M41.