Information and the Cost of Capital

  title={Information and the Cost of Capital},
  author={David Easley and Maureen O’Hara Johnson},
We investigate the role of information in affecting a firm’s cost of capital. We show that differences in the composition of information between public and private information affect the cost of capital, with investors demanding a higher return to hold stocks with greater private information. This higher return arises because informed investors are better able to shift their portfolio to incorporate new information, and uninformed investors are thus disadvantaged. In equilibrium, the quantity… CONTINUE READING
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