RegTech Adoption and the Cost of Capital.

This article examines the impact of the staggered implementation of the U.S. Securities and Exchange Commission’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system—a major regulatory technology (RegTech) event from 1993 to 1996—on firms’ cost of equity capital and investment efficiency. Using a difference-in-differences design with propensity score matching, the study finds that mandatory electronic filing via EDGAR significantly reduces firms’ cost of equity capital, particularly for smaller firms and those with low analyst coverage and institutional ownership. The reduction in cost of capital operates through improved stock liquidity, decreased firm risk, and enhanced corporate governance, evidenced by lower earnings management. Additionally, EDGAR adoption increases the marginal value of firms’ capital expenditures and cash holdings, indicating improved investment efficiency. Robustness tests confirm these findings, supporting the conclusion that enhanced accessibility and dissemination of corporate information via EDGAR materially affect financial market outcomes and corporate behavior.