Disclosure Processing Costs and Market Feedback around the World

Abstract

We study how changes in disclosure processing costs affect managers’ ability to learn from their own firms’ stock prices. To provide evidence on this issue, we examine country-level adoptions of centralized electronic disclosure systems (CEDS). These systems, which digitize and centralize firm disclosures, reduce disclosure processing costs for investors. We find a significant decrease in managers’ investment sensitivity to price following the adoption of CEDS, consistent with managers relying less on the information contained in their firms’ stock prices for their investment decisions. We observe this decrease is most pronounced in countries with the largest reductions in information processing costs. We provide evidence that the decrease is directly attributable to CEDS crowding out investors’ private-information production and indirectly to improvements in the relative informativeness of peer disclosures and prices. Overall, our results show that disclosure technologies that reduce processing costs have real effects on the global economy.

Keywords: Disclosure processing costs, Corporate investment, Financial technology, Managerial learning

JEL Classification: M41, G12, G14, G31