Regtech Adoption and the Cost of Capital

44 Pages Posted: 10 Sep 2020 Last revised: 21 Sep 2020

See all articles by Sandy Lai

Sandy Lai

National Taiwan University - Department of Finance

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Xiaorong Ma

University of Macau, Faculty of Business Administration

Date Written: August 24, 2020

Abstract

This paper studies the real effect of a major RegTech event - the staggered implementation of the SEC’s EDGAR system in 1993-1996. This event represents an exogenous shock to corporate information dissemination technologies, which leads to a considerable reduction in information acquisition costs for investors. We find evidence that firms’ cost of equity capital declines substantially after they switch from paper filing to mandatory electronic filing in EDGAR. The effect is stronger for small firms and firms with low institutional ownership. We identify three channels via which the EDGAR implementation affects firms’ capital cost: liquidity, risk-taking, and corporate governance channels. EDGAR filing firms experience a significant drop in firm risk and an improvement in stock liquidity and corporate governance.

Keywords: RegTech, Information Acquisition Cost, Cost of Capital, Liquidity, Corporate Governance, EDGAR

JEL Classification: G30, G32, G34

Suggested Citation

Lai, Sandy and Lin, Chen and Ma, Xiaorong, Regtech Adoption and the Cost of Capital (August 24, 2020). Available at SSRN: https://ssrn.com/abstract=3683046 or http://dx.doi.org/10.2139/ssrn.3683046

Sandy Lai

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Xiaorong Ma

University of Macau, Faculty of Business Administration ( email )

Macau

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