Do Improvements in the Information Environment Enhance Insiders’ Ability to Learn from Outsiders?

We examine whether and how an exogenous shock to the information environment enhances insiders' ability to learn from outsiders using the mandatory adoption of IFRS as our information shock. We find an increase in investment-to-price sensitivity post-IFRS that is concentrated in firms that experience significant increases in foreign institutional ownership around IFRS adoption, especially when foreign investors are from countries that matter for firms' growth opportunities. We further document an increase in the ability of the market reaction to M&A deal announcements to predict deal completion post IFRS, especially for deals in which the market is likely to have information that is new to insiders. Our results suggest that insiders' ability to learn from outsiders improves post-IFRS. Finally, we find improvements in post-acquisition performance post-IFRS for deals in which learning is more likely to take place, which suggests that insiders' enhanced ability to learn from outsiders yields real economic gains