The Real Effects of Modern Information Technologies

Using the staggered implementation of the EDGAR system from 1993 to 1996 as a shock to information dissemination technologies, we examine the potential benefits and costs of modern information technologies on the real economy. On the one hand, we document results confirming the conventional wisdom that broader information dissemination leads to an increase in the level of equity financing and corporate investment. On the other hand, we provide evidence that greater dissemination of corporate disclosures crowds out private information acquisition and reduces managerial learning from stock prices. This crowding-out effect, while often overlooked, is particularly pronounced in high-growth firms. Our findings suggest that it is important to consider this tradeoff between improved equity financing and reduced managerial learning when evaluating the economic effects of modern information technologies. Our evidence suggests that the former effect dominates in value firms while the latter effect dominates in high-growth firms.