More is Less: Publicizing Information and Market Feedback
Review of Finance, Forthcoming
51 Pages Posted: 5 Aug 2020 Last revised: 23 Oct 2021
Date Written: Sep 18, 2020
We study whether and how publicizing internal information affects the value of financial markets to the real economy. By publicizing corporate filings, the SEC’s EDGAR web platform reduces the cost of acquiring internal information for outsiders and so makes it relatively less attractive to gather external information. We find that the staggered introduction of EDGAR reduced the sensitivity of firm investment to prices, consistent with prices being less informative to managers due to the crowding out of external information gathering. This crowding out effect is stronger when outsiders’ incentives for gathering information are stronger and for firms that rely more on external information. Our findings suggest that policies designed to “level the playing field” by publicizing internal information can have significant unintended consequences by reducing the informativeness of prices for real decisions.
Keywords: EDGAR, real effects of financial markets, price efficiency, price informativeness, information acquisition, SEC regulation, information technology
JEL Classification: G10, G30, M41
Suggested Citation: Suggested Citation