Working Paper | HBS Working Paper Series | 2015

The Benefits of Selective Disclosure: Evidence from Private Firms

by Joan Farre-Mensa


I investigate an unexplored benefit of being privately-held: Non-SEC-filing private firms' ability to disclose confidential information to selected investors minimizes the scope for information asymmetry between the firms and their investors. This decreases private firms' exposure to misvaluation and leads them to hold lower levels of precautionary cash than similar-sized public firms, as private firms do not need to optimize the timing of their equity issues. Consistent with these predictions, I use a unique panel of non-SEC-filing private U.S. firms to show that the average public firm holds twice as much cash as the average private firm. This cash gap is driven by small- and medium-sized public firms, which are most equity dependent, and is larger in industries with higher exposure to misvaluation shocks.

Keywords: finance; equity; Private companies; Corporate cash hoarding; 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 January 2015.)