Does Private Information Always Hurt Retail Investors? The Impact of Private Information on Cost of Equity: Moderating Role of Investment Adjustment

Sana Saleem, Muhammad Usman and Muhammad Naveed Akhtar

SAGE Open, 2023, vol. 13, issue 4, 21582440231205863

Abstract: Private information puts naïve traders at a significant trading disadvantage and at the same it provide crucial signals managers for investment adjustment. These two forces have opposing effects on the cost of equity, and the overall effect is determined by which force dominates. For clinching this effect, this study finds out how investment adjustment plays the moderating role between private information and COE. The study employs data of non-financial firms listed on PSX from 2008 to 2019. Further, the study employs a two-step system GMM dynamic panel estimator to analyze the data. The findings of the study show that companies with a low investment adjustment flexibility known as “value firms†do not gain as much from information incorporated in market prices compared to firms having high flexibility in adjusting investment “growth firms.†This study adds to the literature by revealing unique insight on the effect of investment adjustment in reducing the influence of private information on COE and corporate investment as well. JEL classification: D82, G14, G410.

Keywords: cost of equity; corporate investment; private information; GMM panel estimator (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/21582440231205863 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:13:y:2023:i:4:p:21582440231205863

DOI: 10.1177/21582440231205863

Access Statistics for this article

More articles in SAGE Open
Bibliographic data for series maintained by SAGE Publications ().