Download This PaperInvestor Competition Over Information and the Pricing of Information Asymmetry
43 Pages Posted: 7 Jun 2011 Last revised: 23 Jan 2012
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Investor Competition Over Information and the Pricing of Information Asymmetry
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: Suggested Citation
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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