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Information and the cost of capital: The Easley-O’Hara (2004) model with endogenous information acquisition

Author

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  • Greg Clinch

    (University of Melbourne, Australia, clinchg@unimelb.edu.au)

  • Brett Lombardi

    (University of Melbourne, Australia)

Abstract

We investigate the impact of endogenous information acquisition on Easley and O’Hara’s (2004) result that moving information from being publicly to privately available results in an increase in a firm’s cost of capital. As in Christensen et al. (2010), when the cost of information acquisition is fixed, Easley and O’Hara’s result reverses. We study two scenarios, however, where Easley and O’Hara’s result can continue to hold (i): where the cost of information acquisition is increasing in its precision, and (ii) where the benefits of acquiring private information span multiple firms.

Suggested Citation

  • Greg Clinch & Brett Lombardi, 2011. "Information and the cost of capital: The Easley-O’Hara (2004) model with endogenous information acquisition," Australian Journal of Management, Australian School of Business, vol. 36(1), pages 5-14, April.
    • Handle: RePEc:sae:ausman:v:36:y:2011:i:1:p:5-14
    DOI: 10.1177/0312896211401692
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    References listed on IDEAS

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    1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    2. Richard Lambert & Christian Leuz & Robert E. Verrecchia, 2007. "Accounting Information, Disclosure, and the Cost of Capital," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 385-420, May.
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    Cited by:

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    2. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    3. Wijayana, Singgih & Gray, Sidney J., 2018. "Capital market consequences of cultural influences on earnings: The case of cross-listed firms in the U.S. stock market," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 134-147.

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