Too Much to Learn: The Unintended Consequences of RegTech Development on Mergers and Acquisitions

Despite an emerging literature on the advancement of regulatory technology (RegTech), this paper unveils one of its unintended consequences in the market of corporate control: crowding in uniformed investors and crowding out managerial learning. Exploiting the staggered implementation of the EDGAR system from 1993 to 1996 as quasi-exogenous RegTech shocks, we find evidence that internet dissemination of corporate filings reduces firm acquisitiveness. This effect is more pronounced for growth firms than value firms, for stock-based acquisitions than cash-based acquisitions. In addition, EDGAR implementation results in the acquirers’ lower announcement returns, especially for growth firms. Our overall findings indicate that RegTech development could discourage managerial learning by dampening revelatory price efficiency, resulting in inefficient acquisition decisions.