Information Acquisition Costs and Price Informativeness: Global Evidence

72 Pages Posted: 25 Jan 2021 Last revised: 2 May 2024

See all articles by Charles McClure

Charles McClure

University of Chicago Booth School of Business

Shawn Shi

University of Washington - Michael G. Foster School of Business

Edward M. Watts

Yale School of Management

Date Written: May 1, 2024

Abstract

We study how global changes in information acquisition costs through disclosure technologies affect price informativeness with respect to earnings news. To provide evidence on this issue, we examine worldwide adoptions of centralized electronic disclosure systems, which significantly reduce the cost and broaden access to financial disclosures. Consistent with extant theory, we show a significant reduction in private information acquisition before earnings announcements and an increase in price reaction at the time of the announcement after the introduction of these platforms. These effects are most pronounced in countries with the most substantial reductions in information acquisition costs and where we find more significant decreases in informed trade. Overall, we highlight an important, unintended cost of broadening financial disclosures through technology adoptions.

Keywords: Disclosure, Information acquisition, Price efficiency, Price informativeness, Earnings announcements

JEL Classification: M41, G12, G14, G31

Suggested Citation

McClure, Charles and Shi, Shawn and Watts, Edward, Information Acquisition Costs and Price Informativeness: Global Evidence (May 1, 2024). Chicago Booth Research Paper No. 21-05, Available at SSRN: https://ssrn.com/abstract=3771361 or http://dx.doi.org/10.2139/ssrn.3771361

Charles McClure (Contact Author)

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

Shawn Shi

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Edward Watts

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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