Essays on the Use of Information in Financial Intermediaries

Abstract

My dissertation explores capital market information flows, going beyond the usual focus on firm-to-investor communication. In the second and third chapters, I delve into the role of information in investment delegation among investors. I study private equity, a financial intermediary that is rapidly growing yet whose operating model is less known to accountants. And I find that regulatory intervention on information rights is important for private equity investors, despite the traditional assumption that they safeguard their own rights. Moreover, I also find that asking fund managers to disclose conflicts of interest is not enough; the effect depends on whether managers face public enforcement. In the fourth chapter, I, together with Miao Liu and Rachel Zhang, examine the \textit{inverse} information flow from investors to managers. Specifically, we explore the plausible yet puzzling argument in accounting literature: whether investment-Q sensitivity captures managers’ learning from the capital market, and if so, when and how they learn. Our evidence offers two insights. First, learning is concentrated in a short period of time when stock price movements provide a relatively clean binary signal for managers to act upon. Second, learning from prices can be supplemented by face-to-face discussions with institutional investors, which provides the context for managers to interpret investors’ trading decisions.