On the Fast Track: Information Acquisition Costs and Information Production

80 Pages Posted: 1 Jan 2020 Last revised: 9 Apr 2021

See all articles by Deqiu Chen

Deqiu Chen

University of International Business and Economics

Yujing Ma

Hong Kong Polytechnic University

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Roni Michaely

The University of Hong Kong; ECGI

Date Written: April 1, 2021

Abstract

Using the introduction of high-speed rail (HSR) as an exogenous shock to costs of information acquisition, we show reductions in information-acquisition costs lead to (i) a significant increase in information production, evidenced by a higher frequency of analysts visiting portfolio firms, and (ii) improvement in output quality, manifested in higher forecast accuracy and better recommendations. The effect is more pronounced for firms with information that is difficult to produce. Importantly, more information production is also associated with improved price efficiency. We corroborate these findings using a large-scale survey of financial analysts. Finally, both the empirical and survey results highlight the importance of soft information in analysts’ unique-information production.

Keywords: Information acquisition, Acquisition cost, Information quality, Soft information, Sell side analysts, Price efficiency

JEL Classification: D8, G14, G2, G24, G3

Suggested Citation

Chen, Deqiu and Ma, Yujing and Martin, Xiumin and Michaely, Roni, On the Fast Track: Information Acquisition Costs and Information Production (April 1, 2021). Journal of Financial Economics (JFE), Forthcoming, Swiss Finance Institute Research Paper No. 20-14, Available at SSRN: https://ssrn.com/abstract=3503441 or http://dx.doi.org/10.2139/ssrn.3503441

Deqiu Chen

University of International Business and Economics ( email )

10 Huixindongjie, Chaoyang District
Beijing, 100029
China

Yujing Ma

Hong Kong Polytechnic University ( email )

Hung Hom
Kowloon
Hong Kong

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Roni Michaely

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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