Modern InfoTech and the Democratization of Security Filings
After the SEC's EDGAR system expanded access to firms' financial data, the role of expert analysis in moving stock prices declined, and firm investment became less sensitive to market price swings.
Modern information technology has democratized corporate disclosures, making them broadly available and easy and inexpensive to access. In theory, the timely spread of key data about firms should enable investors to stay informed about company prospects, thereby reducing their risk and potentially lowering the cost of capital to firms. Conventional wisdom suggests that the more broadly a company's information is disseminated, the more liquid and less volatile its stock. New research reported in The Real Effects of Modern Information Technologies (NBER Working Paper 27529) finds that putting US company filings online in the 1990s has had more nuanced effects.
Most Stimulus Payments Were Saved or Applied to Debt
The researchers find that of the 3,020 firms in the study sample — which excluded financial firms, utilities, and companies worth less than $10 million — companies moving onto EDGAR saw a 10 percent rise in corporate investment but a 20 percent decline in investment-to-price sensitivity. A rise in equity finance contributed to the increase in corporate investment. The researchers conjecture that the reason for decreased investment-to-price sensitivity was that managers learned less from the price swings of their company's stock because swings were based on more-democratized but less-precise analysis by market participants. This resulted in heterogeneous effects across firms: returns on value firms improved, while returns on high-growth firms, which are particularly dependent on market analysis, declined. "Our findings suggest that it is important to consider this tradeoff between financing and learning when evaluating the real effects of modern information technologies," the researchers conclude.
— Laurent Belsie
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