Strategic Regulatory Non-Disclosure: The Case of the Missing Form D

Abstract

We document that the majority of venture-capital backed financing r ounds a re n ot accompanied by a Form D filing. We s how t hat fi ling be havior is pr edictable an d is re lated to both the ability to fly below the radar and the benefits of withholding in formation. Financing rounds that are harder to hide, larger offerings and those p reviously c overed by media, a re m ore likely file a Form D while financing rounds by firms with greater proprietary information, early stage firms o r c ompanies i n b iotech, p harmaceutical, a nd h igh t ech i ndustries, a re l ess l ikely t o file a Form D. We document one adverse outcome to the filing o f a Form D, p atent litigation, and show that protection from this type of litigation through the enactment of anti-patent trolling laws subsequently increases the rate of filing. F irms a re l ess l ikely t o fi le a Fo rm D on ce the form is required to be filed on E dgar. Finally, we note that reliance on Regulation D is stronger as the firm n ears a n e xit f rom t he p rivate m arket. O ur r esults s uggests t hat s ome fi rms view even minimal disclosure and regulatory oversight as costly.