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

Brian Akins

Rice University - Jesse H. Jones Graduate School of Business

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

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Date Written: June 6, 2011

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.

Keywords: Information Risk, Information Quality, Asset Pricing

JEL Classification: G12, G14

Suggested Citation

Akins, Brian and Ng, Jeffrey and Verdi, Rodrigo S., Investor Competition Over Information and the Pricing of Information Asymmetry (June 6, 2011). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1769905 or http://dx.doi.org/10.2139/ssrn.1769905

Brian K. Akins

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

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