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...

The consequences of information differences across investors in capital markets are still much debated. This paper examines the relation between information differences across investors and the cost of capital, and makes three points. First, in models of perfect competition, information...

This paper discusses Hirshleifer and Teoh's modeling and analysis of "inattentive investors," stock price valuation, and accounting recognition rules and disclosures. The paper derives many plausible empirical predictions from an equilibrium model in which some investors do not process...