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Investor Competition Over Information and the Pricing of Information AsymmetryBrian AkinsRice University - Jesse H. Jones Graduate School of Business Jeffrey NgSingapore Management University - School of Accountancy Rodrigo S. VerdiMassachusetts Institute of Technology (MIT) June 6, 2011 Accounting Review, Vol. 87, No. 1, pp. 35-58, 2012 Abstract: Whether the information environment affects the cost of capital is a fundamental question in accounting and finance research. Relying on theories about competition between informed investors as well as the pricing of information asymmetry, we hypothesize a cross-sectional variation in the pricing of information asymmetry that is conditional on competition. We develop and validate empirical proxies for competition using the number and concentration of institutional investor ownership. Using these proxies, we find a lower pricing of information asymmetry when there is more competition. Overall, our results suggest that competition between informed investors has an important effect on how the information environment affects the cost of capital.
Number of Pages in PDF File: 43 Keywords: Information Risk, Information Quality, Asset Pricing JEL Classification: G12, G14 Accepted Paper SeriesDate posted: June 7, 2011 ; Last revised: April 18, 2013Suggested CitationContact Information
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