The productivity effect of digital financial reporting

We examine the effect of digital financial reporting on firm productivity. Information frictions represent a constraint that impedes efficient resource allocation and a major source of such frictions stems from the fact that firms’ production functions (the conversion from inputs to outputs) are not observable to corporate outsiders. Digital communication of corporate financial data fundamentally changes how firm-specific information is disclosed, released, and disseminated by mitigating information asymmetry between corporate insiders and outsiders and facilitates the processing of such information. We use the staggered implementation of the SEC’s Electronic Data Gathering and Analysis Retrieval (EDGAR) system to investigate the impact of digital financial reporting on firms’ productivity. We show that the implementation of EDGAR results in an economically meaningful and statistically significant increase on firms’ productivity, measured by total factor productivity (TFP). By focusing on the role of information dissemination in coordinating investments and production, our findings provide evidence on the real effects of “going digital” in corporate reporting.