RegTech Adoption and the Cost of Capital

Sandy Lai (), Chen Lin and Xiaorong Ma ()
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Sandy Lai: College of Management, National Taiwan University, Taipei City 106, Taiwan
Xiaorong Ma: Faculty of Business Administration, University of Macau, Taipa, Macau, China

Management Science, 2024, vol. 70, issue 1, 309-331

Abstract: This paper studies the cost of capital effect of a major regulatory technology, or RegTech, event: the staggered implementation of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system of the Securities and Exchange Commission in the period from 1993 to 1996. This event represents a largely exogenous shock to corporate information dissemination technologies, resulting in a considerable reduction in information acquisition costs for investors. Using a difference-in-differences research design, we show that the cost of equity capital declines substantially after a firm switches from paper filing to mandatory electronic filing in EDGAR. The effect is stronger for small firms and firms with low analyst coverage and low institutional ownership. We identify three channels through which EDGAR affects a firm’s cost of capital: the liquidity, risk-taking, and corporate governance channels. EDGAR implementation also improves a firm’s investment efficiency significantly. We find evidence that the marginal value of a firm’s capital investment and cash is higher during the post-EDGAR period.

Keywords: RegTech; information acquisition cost; cost of capital; liquidity; corporate governance; EDGAR (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:1:p:309-331

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