On the Fast Track: Information Acquisition Costs and Information Production
96 Pages Posted: 6 Aug 2020 Last revised: 10 Aug 2020
Date Written: January 29, 2020
Using the introduction of high-speed rail (HSR) as an exogenous shock to costs of information acquisition, we show that 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. Increases in the difficulty in visiting a firm without HSR and in the importance of soft information lead to these effects becoming more pronounced. 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