Firms communicate with investors by making company information available to the public.However,certain private information resides within firms and some are not equally disseminated across different market participants.The discrepancies of information held by firms and different groups of investors create information asymmetry,which in turn spurs information risk.Extant literature identifies information imprecision and dispersion as the two focal aspects of information risk(Bhattacharya et al.2012).According to this view,investors'valuation inaccuracy denotes imprecision whereas their disagreement pertinent to firm values signifies information dispersion.The effects of information risk on firm value and financial cost are critical.Previous studies suggest that asset prices fall significantly when information risk increases(e.g.,Easley et al.2002;Kelly and Ljungqvist 2012).Most notably,investors in firms with high information risk cannot adjust their investment to incorporate new information(i.e.,firms retain greater private information)and hence,demand higher returns to compensate for higher risk(Easley and O'hara 2004).Such firms will have higher cost of capital(Bhattacharya et al.2012;Easley and O'hara 2004;Levi and Zhang 2015).As cost of capital is an essential benchmark used internally by companies(as an internal rate of return aiding investment decisions)and externally by investors(as an average required rate of return expected from investment in firms'debts and equity)(e.g.,Brealey et al.2020),reducing information risk is mere compulsory.
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