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.
Information Risk, Information Quality, Asset Pricing
Accounting | Corporate Finance
Financial Performance Analysis
American Accounting Association
Atkins, Brian K.; NG, Jeffrey; and Verdi, Rodrigo.
Investor competition over information and the pricing of information asymmetry. (2012). Accounting Review. 87, (1), 35-58. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/876
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