The Accounting Review Vol. 89 No. 4 2014
Information Asymmetry and the Ex Ante Impact of Public Disclosure Quality on Price Efficiency and the Cost of Capital: Evidence from a Laboratory Market
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.
- DOI
- 10.2308/accr-50715
- Volume
- 89
- Issue
- 4
- Pages
- 1269-1297
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref