Financial Disclosure Incentives and Organizational Form Changes

This study investigates the factors that induce an organizational form change in a private corporation into a limited company ( LC ) from the disclosure incentive perspective. Using 1500 firm‐year observations from 2007 to 2012, we find that private corporations with low leverage, non‐clean audit opinions, high foreign ownership, high abnormal profits, and high‐technology industry membership are more likely to change their organizational form into LC s. This finding suggests that if private corporations have low incentives for financial disclosure, then they initiate organizational form changes into LC s to avoid the costs incurred from the disclosure requirement mandated by law.