The Real Effects of Financial Information Dissemination on Innovation: Evidence from the EDGAR Implementation

Abstract

This paper examines the real effects of financial information dissemination on innovation. Broader dissemination of corporate disclosures can reduce the uncertainty associated with the expected value of R&D investments and increase clarity about the profitability of the underlying innovation to follow-on innovators. First, using the staggered adoption of the EDGAR system as a positive shock to information dissemination, I show that dissemination increases follow-on innovation. Next, I investigate the knowledge spillover effects from faster and easier access to technologically similar peers’ corporate disclosures. I find that firms leverage information from peers’ corporate disclosures to improve their own innovative efficiency. These positive externalities are also present at the aggregate industry level. Finally, dissemination causes firms to technologically differentiate their innovation portfolios from their peers’ portfolios, reducing investments in duplicative research. Overall, I document that broader dissemination of corporate disclosures has positive externalities on a firm’s follow-on innovation and aggregate innovative efficiency.

Keywords: Innovation, Disclosure, Information Processing Costs

JEL Classification: M40, M41, O30, O31, O32, D83