On the Fast Track: Information Acquisition Costs and Information Production

96 Pages Posted: 6 Aug 2020 Last revised: 10 Aug 2020

See all articles by Deqiu Chen

Deqiu Chen

University of International Business and Economics

Yujing Ma

Business School, University of International Business and Economics

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Date Written: January 29, 2020

Abstract

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

Chen, Deqiu and Ma, Yujing and Martin, Xiumin and Michaely, Roni, On the Fast Track: Information Acquisition Costs and Information Production (January 29, 2020). Swiss Finance Institute Research Paper No. 20-62, Available at SSRN: https://ssrn.com/abstract=3527260 or http://dx.doi.org/10.2139/ssrn.3527260

Deqiu Chen (Contact Author)

University of International Business and Economics ( email )

Beijing
China

Yujing Ma

Business School, University of International Business and Economics ( email )

425 Ning Yuan Building,10 Hui Xin Dong Jie
Beijing, Beijing 100000
China

Xiumin Martin

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

Saint Louis, MO 63130
United States

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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