Disclosure Processing Costs and Market Feedback around the World

67 Pages Posted: 25 Jan 2021 Last revised: 26 Apr 2022

See all articles by Charles McClure

Charles McClure

University of Chicago Booth School of Business

Shawn Shi

Stanford Graduate School of Business; University of Washington - Michael G. Foster School of Business

Edward M. Watts

Yale School of Management

Date Written: April 23, 2022

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

Suggested Citation

McClure, Charles and Shi, Shawn and Watts, Edward, Disclosure Processing Costs and Market Feedback around the World (April 23, 2022). Chicago Booth Research Paper No. 21-05, Available at SSRN: https://ssrn.com/abstract=3771361 or http://dx.doi.org/10.2139/ssrn.3771361

Charles McClure (Contact Author)

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

Shawn Shi

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Edward Watts

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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