Societal secrecy and corporate debt financing choice

We investigate the impact of societal secrecy on corporate debt financing decisions. Based a sample of 30,680 firms across 34 countries, we find robust evidence that societal secrecy is positively associated with bank debt financing and negatively associated with public debt financing. This finding is robust to a wide variety of sensitivity tests and to addressing endogeneity concerns. Cross-sectional analyses show that strong shareholder rights protection and the degree of internationalization moderate the relation between societal secrecy and debt choice. Additional analyses reveal that societal secrecy influences the choice of debt financing through three channels: information asymmetry, proprietary cost information, and information production cost. Our study sheds light on societal secrecy as a potential explanation for the variations in public debt market development across countries.