On the Fast Track: Information Acquisition Costs and Information Production
80 Pages Posted: 1 Jan 2020 Last revised: 9 Apr 2021
Date Written: April 1, 2021
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: Suggested Citation