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Information versus Investment

Author

Listed:
  • Stephen J
  • Toni M
  • Anastasia A
  • Itay Goldstein

Abstract

We quantify the real implications of trade-offs between firm information disclosure and long-term investment efficiency. We estimate a dynamic equilibrium model in which firm managers confront realistic incentives to misreport earnings and distort their real investment choices. The model implies a socially optimal level of disclosure regulation that exceeds the estimated value. Counterfactual analysis reveals that eliminating earnings misreporting completely through disclosure regulation incentivizes managers to distort real investment. Lower earnings informativeness raises the cost of capital, which results in a 5.7 drop in average firm value, but more modest effects on social welfare and aggregate growth.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Stephen J & Toni M & Anastasia A & Itay Goldstein, 2023. "Information versus Investment," The Review of Financial Studies, Society for Financial Studies, vol. 36(3), pages 1148-1191.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:3:p:1148-1191.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac052
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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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