Title

Investor competition over information and the pricing of information asymmetry

Publication Type

Journal Article

Publication Date

2012

Abstract

Whether the information environment affects the cost of capital is a fundamental question in accounting and finance research. Relying on theories about competition between informed investors as well as the pricing of information asymmetry, we hypothesize a cross-sectional variation in the pricing of information asymmetry that is conditional on competition. We develop and validate empirical proxies for competition using the number and concentration of institutional investor ownership. Using these proxies, we find a lower pricing of information asymmetry when there is more competition. Overall, our results suggest that competition between informed investors has an important effect on how the information environment affects the cost of capital.

Keywords

Information Risk, Information Quality, Asset Pricing

Discipline

Accounting | Finance and Financial Management

Publication

The Accounting Review

ISSN/ISBN

0001-4826

Identifier

10.2139/ssrn.1769905