Investor competition over information and the pricing of information asymmetry

Brian K. Akins, Tee Yong Ng, Rodrigo S. Verdi

Research output: Journal article publicationReview articleAcademic researchpeer-review

60 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)35-58
Number of pages24
JournalAccounting Review
Volume87
Issue number1
DOIs
Publication statusPublished - 1 Jan 2012
Externally publishedYes

Keywords

  • Asset pricing
  • Information quality
  • Information risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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