On the fast track: Information acquisition costs and information production

Deqiu Chen; Yujing Ma; Xiumin Martin; Roni Michaely

doi:10.1016/j.jfineco.2021.06.025

Journal of Financial Economics Vol. 143 No. 2 2022

On the fast track: Information acquisition costs and information production

Deqiu Chen¹; Yujing Ma ²; Xiumin Martin³; Roni Michaely^4,5

¹ University of International Business and Economics · ² Hong Kong Polytechnic University · ³ Washington University in St. Louis · ⁴ Chinese Academy of Governance · ⁵ University of Hong Kong

open access

Abstract

Using the introduction of high-speed rail (HSR) as an exogenous shock to costs of information acquisition, we show reductions in information-acquisition costs lead to (i) a significant increase in information production, evidenced by a higher frequency of analysts visiting portfolio firms and (ii) improvement in output quality, manifested in higher forecast accuracy and better recommendations. The effect is more pronounced for firms with information that is difficult to produce. Importantly, more information production is also associated with improved price efficiency. We corroborate these findings using a large-scale survey of financial analysts. Finally, both the empirical and survey results highlight the importance of soft information in analysts’ unique-information production.

DOI: 10.1016/j.jfineco.2021.06.025
Volume: 143
Issue: 2
Pages: 794-823
Language: en
Sources: bibtex:phds-export.bib openalex crossref

On the fast track: Information acquisition costs and information production

Abstract

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