The information spillover role of corporate spin-offs in financing activities: Evidence from equity sales by private firms through Regulation D

We examine whether the increased quantity of public information has a spillover impact on equity sales by private industry peer firms. To capture an increase in the quantity of public peer information, we use corporate spin-offs as these events cause an increase in the number of independent public entities that mandatorily disclose financial reports. Using a unique dataset on private firms’ equity sales extracted from the Securities and Exchange Commission filings pursuant to Regulation D, we find that private industry peers sell more equity following spin-offs, but the increase is not statistically significant. When we divide our spin-off sample based on the availability of segment information on subsidiaries before spin-offs, however, we find a significant an increase in private firms’ equity sales after spin-offs when parent firms did not previously disclose segment reports. Additional test results suggest that our inferences regarding private industry peers are not entirely explained by an industry-wide demand shock. Overall, we contribute to the literature by establishing an information spillover channel, incremental to the effect of common industry shocks, flowing from the public to private markets.