Regulation and processing costs: Evidence from the hyperlink mandate | CU Experts

We examine whether the SEC’s 2017 hyperlink mandate, which requires linking external exhibits to their underlying documents, helps investors more efficiently process focal filings as intended. Despite evidence showing that investors access linked Item 15 exhibits around 10-K filings, we find no change in market-based processing proxies, on average. However, as expected, focusing on investors predicted by theory to benefit more from additional information acquisition (i.e., investors in firms with weak information environments), we observe stronger post-mandate market responses to 10-K filings. In contrast, when we examine investors facing processing constraints (i.e., on busier days or processing complex filings), we observe muted market responses post-mandate. This evidence indicates that reducing costs of acquiring external documents reduces the cost of processing the 10-K for some investors while increasing the cost for others. Our findings suggest that usability-focused regulation can generate heterogeneous effects across investors.

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