Hidden Mandatory Disclosure

Electronic dissemination of corporate filings via the SEC’s EDGAR system is a cornerstone of modern capital markets. Nevertheless, the SEC has also continued to accept certain filings on paper and not post them to EDGAR. Instead, they make these “hidden” disclosures available to the public in the SEC Reading Room where a private data vendor digitizes the filings and sells them to institutional clients. In April 2020, the SEC closed the Reading Room in response to the COVID-19 pandemic and began publicly disclosing scanned images of some paper filings. I examine the consequences of this SEC policy change using an archived dataset of 50,000 digitized paper filings from 2018 to 2021. After the policy change, I find a pronounced equity market reaction to the content of the paper filings, a decline in information asymmetry at affected firms, and an economically and statistically significant decline in opportunism by insiders. Based on the processing costs framework from prior literature, my findings suggest that awareness costs can be a significant friction that precludes investors from employing disclosures useful for valuation and monitoring—even when the benefits of doing so far exceed the acquisition and integration costs.