Information Overload and Cost of Equity Capital

Abstract

In recent years, corporate filings and their important sections have become thicker and longer. At the same time investors are swamped with information that is available through media, analysts and other sources creating information overload. Using several firm level proxies of information overload and several firm-level proxies of cost of equity capital, we examine in this paper whether information overload affects firms required rate of returns (i.e. financing costs). Based on a sample of 13418 firm-years during the 1993 to 2009 period, we find that information overload significantly and positively affects cost of equity capital. These results are robust to a series of validity checks.