In this paper we study the relation between firm-level disclosure quality and the availability of external finance to firms. Using data on Finnish firms that are mostly private and small, we first estimate ‘excess growth’ made possible by external finance. We then show that the excess growth is associated with the quality of disclosure, and that at least a part of the association arises because firms with excess growth self-select. Interestingly, the association also seems to be related to a priori financially constrained firms. The results suggest that (a) the firms that resort to high quality disclosure are more likely to be the ones that grow at a rate that requires external finance and (b) that the excess growth and the choice of disclosure quality are jointly determined.
Corporate finance information disclosure auditing financial constraints