Information Asymmetry and the Ex Ante Impact of Public Disclosure Quality on Price Efficiency and the Cost of Capital: Evidence from a Laboratory Market

2013 ◽  
Author(s):  
Orie E. Barron ◽  
Hong Qu
Keyword(s):  
Information Asymmetry ◽  
Cost Of Capital ◽  
Public Disclosure ◽  
Disclosure Quality ◽  
Price Efficiency ◽  
Ex Ante ◽  
The Cost ◽  
Laboratory Market

Information Asymmetry and the Ex Ante Impact of Public Disclosure Quality on Price Efficiency and the Cost of Capital: Evidence from a Laboratory Market

2014 ◽  
Vol 89 (4) ◽  
pp. 1269-1297 ◽  
Author(s):  
Orie E. Barron ◽  
Hong Qu
Keyword(s):  
Information Asymmetry ◽  
Adverse Selection ◽  
Information Quality ◽  
Cost Of Capital ◽  
Public Information ◽  
Public Disclosure ◽  
High Quality ◽  
Price Efficiency ◽  
Private Signals ◽  
Ex Ante

ABSTRACT: This paper examines the ex ante effects of public information quality on market prices and how such effects vary with information asymmetry among traders in a two-period experimental market. We vary public information quality by changing its precision and information asymmetry among traders by varying the distribution of private signals. We find high-quality public disclosure leads to increased price efficiency and decreased cost of capital in the pre-announcement period when information asymmetry is high. The impending high-quality public information increases the competition among informed traders, which leads prices to impound more private information and alleviates the adverse selection problems facing uninformed traders. Our study suggests building a high-quality public information environment (e.g., by adopting high-quality accounting standards or committing to transparent disclosure policies) would likely provide ex ante benefits for firms with significant adverse selection among traders.

Information and the Cost of Capital: An Ex Ante Perspective

2010 ◽  
Vol 85 (3) ◽  
pp. 817-848 ◽  
Author(s):  
Peter O. Christensen ◽  
Leonidas E. de la Rosa ◽  
Gerald A. Feltham
Keyword(s):  
Rational Expectations ◽  
Cost Of Capital ◽  
Public Disclosure ◽  
Full Time ◽  
Recent Discussion ◽  
Equilibrium Prices ◽  
Ex Post ◽  
Ex Ante ◽  
The Cost ◽  
The Impact

ABSTRACT: Recent articles have demonstrated that increased public disclosure can decrease firms’ cost of capital. The focus has been on the impact of information on the cost of capital subsequent to the release of the information (the ex post cost of capital). We show that the reduction in the ex post cost of capital is offset by an equal increase in the cost of capital for the period leading up to the release of the information (the preposterior cost of capital). Thus, within the class of models framing the recent discussion, there is no impact on the ex ante cost of capital covering the full time span of the firm. The extent to which information is made publicly or privately available affects the timing of the resolution of uncertainty and when the information is reflected in equilibrium prices, but there is no impact on initial equilibrium prices. Within a noisy rational expectations equilibrium, rational investors may actually benefit from a higher ex post cost of capital.

How are corporate disclosures related to the cost of capital? The fundamental role of information asymmetry

2016 ◽  
Vol 54 (7) ◽  
pp. 1669-1701 ◽  
Author(s):  
Beatriz Cuadrado-Ballesteros ◽  
Isabel-Maria Garcia-Sanchez ◽  
Jennifer Martinez Ferrero
Keyword(s):  
Information Asymmetry ◽  
Cost Of Capital ◽  
Agency Conflicts ◽  
Content Type ◽  
Mediator Role ◽  
International Setting ◽  
The Cost ◽  
Role Of Information ◽  
Corporate Disclosures

Purpose – The purpose of this paper is to analyze empirically the fundamental role that information asymmetry plays in the functioning of an efficient capital market as mediator in the relation between corporate disclosures and cost of capital. Design/methodology/approach – By using a sample of 1,260 international non-financial listed companies in the period 2007-2014. Findings – The findings suggest that high-quality financial and social disclosures quality reduce the cost of capital, by decreasing information asymmetry. In other words, the authors find evidence of the mediator role of information asymmetry in the relation between corporate disclosures and the cost of capital. These results are also controlled for differences on accounting standards and other institutional factors. Originality/value – The central assumption is that the demand for corporate disclosures that reduces the information advantages of some investors (who are more informed) arises from agency conflicts and these information differences in turn, determine the cost of capital. This paper is the first attempt to study, jointly, the effects of decreasing information asymmetries by corporate disclosures on the cost of capital in an international setting. In addition, the authors focussed on both financial and social disclosures, creating empirical proxies whose validity for the analysis has been evidenced.

scholarly journals Information Asymmetry, Information Precision, and the Cost of Capital*

2011 ◽  
Vol 16 (1) ◽  
pp. 1-29 ◽  
Author(s):  
Richard A. Lambert ◽  
Christian Leuz ◽  
Robert E. Verrecchia
Keyword(s):  
Information Asymmetry ◽  
Cost Of Capital ◽  
Asymmetry Information ◽  
Information Precision ◽  
The Cost

Accounting for Software Development Costs and Information Asymmetry

2005 ◽  
Vol 80 (4) ◽  
pp. 1211-1231 ◽  
Author(s):  
Emad Mohd
Keyword(s):  
Software Development ◽  
Information Asymmetry ◽  
Cost Of Capital ◽  
Software Industry ◽  
High Tech ◽  
Bid Ask Spread ◽  
Development Costs ◽  
Software Firms ◽  
The Cost ◽  
The Impact

I investigate the impact of implementing SFAS No. 86, which provides an exception to the GAAP requirement of the immediate expensing of research and development (R&D), on information asymmetry. Using bid-ask spread and share turnover as proxies for information asymmetry, I find that after the introduction of SFAS No. 86, information asymmetry decreases for software firms relative to that of other high-tech firms. Within the software industry, I find that information asymmetry is significantly lower for firms that capitalize (capitalizers) than for those who expense (expensers) software development costs. Thus, accounting for software development costs per SFAS No. 86 reduces information asymmetry and, consequently, the cost of capital. As well, investors' uncertainty about the future benefits of software development costs is reduced when firms capitalize these costs.

scholarly journals When Does Information Asymmetry Affect the Cost of Capital?

2010 ◽  
Vol 49 (1) ◽  
pp. 1-40 ◽  
Author(s):  
CHRISTOPHER S. ARMSTRONG ◽  
JOHN E. CORE ◽  
DANIEL J. TAYLOR ◽  
ROBERT E. VERRECCHIA
Keyword(s):  
Information Asymmetry ◽  
Cost Of Capital ◽  
The Cost
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