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Incentives for Information Production in Markets where Prices Affect Real Investment

Author

Listed:
  • Itay Goldstein

    (University of Pennsylvania)

  • Alexander Guembel

    (University of Oxford)

  • James Dow

    (London Business School)

Abstract
We show that the amount of information in equilibrium increases in the expected profitability of the firm’s investments, and that this creates an amplification mechanism from changes in fundamentals to real value. Uncertainty about future performance has a non-trivial effect on information production. We show that information production on investment opportunities is less privately profitable than that on assets in place, and argue that some overinvestment increases firm value.

Suggested Citation

  • Itay Goldstein & Alexander Guembel & James Dow, 2008. "Incentives for Information Production in Markets where Prices Affect Real Investment," 2008 Meeting Papers 270, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:270
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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