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

@inproceedings{Lambert2006InformationA,
  title={Information Asymmetry , Information Precision , and the Cost of Capital *},
  author={Richard A. Lambert and Christian Leuz and Robert E. Verrecchia},
  year={2006}
}
This paper examines the relation between information differences across investors (i.e., information asymmetry) and the cost of capital and establishes that with perfect competition information asymmetry makes no difference. Instead, a firm’s cost of capital is governed solely by the average precision of investors’ information. With imperfect competition, however, information asymmetry affects the cost of capital even after controlling for investors’ average precision. In other words, the… CONTINUE READING
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