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RegTech Adoption and the Cost of Capital

Author

Listed:
  • Sandy Lai

    (College of Management, National Taiwan University, Taipei City 106, Taiwan)

  • Chen Lin

    (Faculty of Business and Economics, University of Hong Kong, Lung Fu Shan, Hong Kong)

  • Xiaorong Ma

    (Faculty of Business Administration, University of Macau, Taipa, Macau, China)

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.

Suggested Citation

  • Sandy Lai & Chen Lin & Xiaorong Ma, 2024. "RegTech Adoption and the Cost of Capital," Management Science, INFORMS, vol. 70(1), pages 309-331, January.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:1:p:309-331
    DOI: 10.1287/mnsc.2022.4660
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