When Does Information Asymmetry Affect the Cost of Capital?
This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can hav...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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University of Chicago on behalf of the Accounting Research Center
2012
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| Online Access: | http://hdl.handle.net/1721.1/68635 https://orcid.org/0000-0001-9424-3406 |
| _version_ | 1811073620460437504 |
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| author | Armstrong, Christopher S. Core, John E. Taylor, Daniel J. Verrecchia, Robert E. |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Armstrong, Christopher S. Core, John E. Taylor, Daniel J. Verrecchia, Robert E. |
| author_sort | Armstrong, Christopher S. |
| collection | MIT |
| description | This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can have a separate effect on firms’ cost of capital. Consistent with our prediction, we find that information asymmetry has a positive relation with firms’ cost of capital in excess of standard risk factors when markets are imperfect and no relation when markets approximate perfect competition. Overall, our results show that the degree of market competition is an important conditioning variable to consider when examining the relation between information asymmetry and cost of capital. |
| first_indexed | 2024-09-23T09:35:52Z |
| format | Article |
| id | mit-1721.1/68635 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T09:35:52Z |
| publishDate | 2012 |
| publisher | University of Chicago on behalf of the Accounting Research Center |
| record_format | dspace |
| spelling | mit-1721.1/686352022-09-30T15:34:37Z When Does Information Asymmetry Affect the Cost of Capital? Armstrong, Christopher S. Core, John E. Taylor, Daniel J. Verrecchia, Robert E. Sloan School of Management Core, John E. Core, John E. This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can have a separate effect on firms’ cost of capital. Consistent with our prediction, we find that information asymmetry has a positive relation with firms’ cost of capital in excess of standard risk factors when markets are imperfect and no relation when markets approximate perfect competition. Overall, our results show that the degree of market competition is an important conditioning variable to consider when examining the relation between information asymmetry and cost of capital. 2012-01-23T18:16:44Z 2012-01-23T18:16:44Z 2011-01 2009-02 Article http://purl.org/eprint/type/JournalArticle 0021-8456 1475-679X http://hdl.handle.net/1721.1/68635 Armstrong, Christopher S. et al. “When Does Information Asymmetry Affect the Cost of Capital?” Journal of Accounting Research 49.1 (2011): 1-40. https://orcid.org/0000-0001-9424-3406 en_US http://dx.doi.org/10.1111/j.1475-679X.2010.00391.x Journal of Accounting Research Creative Commons Attribution-Noncommercial-Share Alike 3.0 http://creativecommons.org/licenses/by-nc-sa/3.0/ application/pdf University of Chicago on behalf of the Accounting Research Center Prof. Core via Alex Caracuzzo |
| spellingShingle | Armstrong, Christopher S. Core, John E. Taylor, Daniel J. Verrecchia, Robert E. When Does Information Asymmetry Affect the Cost of Capital? |
| title | When Does Information Asymmetry Affect the Cost of Capital? |
| title_full | When Does Information Asymmetry Affect the Cost of Capital? |
| title_fullStr | When Does Information Asymmetry Affect the Cost of Capital? |
| title_full_unstemmed | When Does Information Asymmetry Affect the Cost of Capital? |
| title_short | When Does Information Asymmetry Affect the Cost of Capital? |
| title_sort | when does information asymmetry affect the cost of capital |
| url | http://hdl.handle.net/1721.1/68635 https://orcid.org/0000-0001-9424-3406 |
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