RegTech Adoption and the Cost of Capital

44 Pages Posted: 6 Apr 2020 Last revised: 21 Sep 2020

See all articles by Sandy Lai

Sandy Lai

University of Hong Kong

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Xiaorong Ma

University of Macau, Faculty of Business Administration

Date Written: March 11, 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 (March 11, 2020). Available at SSRN: https://ssrn.com/abstract=3552655 or http://dx.doi.org/10.2139/ssrn.3552655

Sandy Lai (Contact Author)

University of Hong Kong ( email )

Faculty of Business and Economics
K.K. Leung Building, Pokfulam Road
Hong Kong, Pokfulam HK
Hong Kong

Chen Lin

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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