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On the Fast Track: Information Acquisition Costs and Information Production

Author

Listed:
  • Deqiu Chen

    (Business School, University of International Business and Economics)

  • Yujing Ma

    (Business School, University of International Business and Economics)

  • Xiumin Martin

    (Washington University in Saint Louis - Olin School of Business)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute)

Abstract

Using the introduction of high-speed rail as exogenous shocks to costs of information acquisition, we show that reductions in information-acquisition costs lead to a significant increase in information production and improvement in output quality, evidenced by higher frequency of analysts visiting portfolio firms, and higher forecast accuracy. We further find that information production represents the channel through which acquisition costs affect output quality. We corroborate these findings using a large-scale survey of financial analysts. More information production is also associated with improved price efficiency. Finally, both the empirical and survey results highlight the importance of soft information in analysts’ information production.

Suggested Citation

  • Deqiu Chen & Yujing Ma & Xiumin Martin & Roni Michaely, 2020. "On the Fast Track: Information Acquisition Costs and Information Production," Swiss Finance Institute Research Paper Series 20-14, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2014
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G3 - Financial Economics - - Corporate Finance and Governance

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