How Algorithmic Gaze Shapes Firms’ Information Disclosure: Evidence from RegTech Adoption

【Authors】

TAN Hongtao, HUANG Li

【WorkUnit】

Southwestern University of Finance and Economics, 610000.

【Abstract】

Against the digital upgrading of capital market regulation, Regulatory Technology (RegTech) has emerged as a critical instrument for enhancing regulatory efficiency. This paper examines the impact of RegTech adoption on corporate information disclosure. Drawing on Becker’s economics of crime, we develop a cost-benefit framework to analyze firms’ disclosure behavior. Structured financial hard information, governed by uniform accounting standards, is readily detectable by algorithmic tools, thereby raising the expected cost of earnings management. By contrast, unstructured textual information remains subject to algorithmic limitations in semantic interpretation, creating regulatory loopholes. Rational managers, therefore, engage in strategic manipulation shifting: They reduce earnings management while increasing optimistic tone manipulation. To test this hypothesis, we construct a quasi-natural experiment using staggered RegTech implementation across regional securities bureaus, with a sample of Chinese A-share listed firms spanning 2013-2023.
Our findings indicate that RegTech significantly curbs accrual-based earnings manipulation but concurrently exacerbates tone manipulation, revealing the incomplete governance capacity of current RegTech. This asymmetric disclosure pattern is more pronounced among firms with stronger manipulation incentives and limited room for financial manipulation, consistent with a managerial cost-benefit tradeoff. Moreover, firms with high R&D intensity and high levels of digitalization are more inclined to adopt such strategies. Further analyses indicate that big-data public opinion monitoring can partially offset RegTech’s deficiencies in regulating soft information disclosure. Managers primarily employ this strategy to polish corporate images during performance downturns, justify their excessive executive pay, and pursue private stock gains. Additionally, RegTech adoption reduces regulatory inquiry risks related to earnings manipulation, but exerts no significant effect on inquiries concerning tone manipulation.
This study contributes empirical evidence on the dual-sided effects of intelligent RegTech adoption. It extends the application of the economics of crime to the context of digital regulation and offers a quantitative framework for evaluating digital empowerment. Finally, our results imply that regulators should not only upgrade technical tools but also accelerate the digitalization of disclosure rules to narrow regulatory blind spots.

JEL: G28, M41, O33

【KeyWords】

RegTech, Information Disclosure, Earnings Management, Tone Management