The Impact of Information Technology on Stock Price Crash Risk: Evidence from the EDGAR Implementation
47 Pages Posted: 9 Sep 2019
Date Written: August 2019
This paper examines the effect of information technologies on stock price crash risk. Information technology advancements change the way firm-specific information is disseminated and acquired, providing significant benefits to investors. We use the required staggered implementation of the SEC’s Electronic Data Gathering and Analysis Retrieval system (EDGAR) to examine the impact of information technologies on stock price crash risk. We find that the implementation of EDGAR is associated with a decrease in stock price crash risk and this effect is more pronounced for firms with greater information asymmetry. Additionally, we provide evidence that conservatism increases following the EDGAR implementation, suggesting that more timely recognition of bad news is a channel through which stock price crash risk decreases following the implementation. Our results suggest that information technologies that strengthen the monitoring ability of investors limit managers’ ability to conceal and hoard bad news, which ultimately reduces stock price crash risk.
Keywords: Information technology, EDGAR, stock price crash risk
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