Working Paper | HBS Working Paper Series | 2015

The Benefits of Selective Disclosure: Evidence from Private Firms

by Joan Farre-Mensa


Private firms’ ability to communicate confidentially with selected investors implies that valuation disagreements between firms and investors are larger at public firms than at private ones. Consistent with the notion that misvaluation concerns lead public firms to hoard cash to be able to optimize the timing of their equity issues, I show that small and medium public firms hold substantially more cash than similar-sized private ones. This difference is driven by public firms with high misevaluation exposure, which use their cash to avoid raising equity when they are hit by a cash flow shock and their equity is likely undervalued.

Keywords: finance; equity; Private companies; Corporate cash; Precautionary motives; Market timing; Share issuance; IPOs; Selective disclosure; Private Ownership; Cash; Market Timing; Corporate Finance; Public Ownership; United States;


Farre-Mensa, Joan. "The Benefits of Selective Disclosure: Evidence from Private Firms." Harvard Business School Working Paper, No. 14-095, April 2014. (Revised June 2015.)