Investor Competition Over Information and the Pricing of Information Asymmetry
The Accounting Review, Forthcoming
43 Pages Posted: 27 Feb 2011 Last revised: 18 Apr 2013
Date Written: June 6, 2011
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.
Keywords: Information Risk, Information Quality, Asset Pricing
JEL Classification: G12, G14
Suggested Citation: Suggested Citation