Information and Cost of Equity Capital in Brazil: Does Competition Matter?

18 Pages Posted: 9 Jan 2018

Date Written: January 8, 2018


The objective of this paper was to analyze the effect of competition over better information on the cost of equity capital of Brazilian firms that trade their shares at the BM&FBovespa. The theoretical framework used models to analyze the expectations equilibrium when the information is not perfectly distributed (Grossman & Stiglitz, 1980; Easley & O’Hara, 2004; Hughes, Liu & Liu, 2007). The sample comprised observations from 2008 to 2014. To reach the set objective, the following proxies were used for competition over better information: investment analyst coverage, the number of institutional investors with resources applied in the firm, the total number of individual private investors (shareholders) and the probability of private information; nevertheless, only the analyst coverage provided statistically significant results. By using the ordinary least squares estimations with fixed effects, Fama-MacBeth and quantile regression (scaled and not scaled), the main results indicated, on average, that the competition over better information is capable of reducing the cost of equity capital, and that this effect is most evident in firms which are in a previously-bad information environment (latest quantiles of the quantile regression, q.90 and q.95); in addition, the effect is only significant when the firm has a low analyst coverage. This paper’s major contribution to the literature was that it demonstrated that attracting analysts to cover company activity is important, to a certain extent, so firms can manage to reduce their cost of capital; analyst coverage dominated all the other variables usually present in the literature on competition over information.

Keywords: Information Environment, Competition Over Better Information, Cost Of Capital

JEL Classification: D82, E44, G12, G14, G32

Suggested Citation

Pontes Girão, Luiz Felipe de Araújo and Paulo, Edilson, Information and Cost of Equity Capital in Brazil: Does Competition Matter? (January 8, 2018). Available at SSRN: or

Luiz Felipe de Araújo Pontes Girão (Contact Author)

Federal University of Paraiba (UFPB) ( email )

Cidade Universitária
s/n - Castelo Branco III
João Pessoa, Paraiba 58297-000

Edilson Paulo

Federal University of Paraiba ( email )

João Pessoa, Paraiba 58038-382

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