Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: May, 1980, Volume 48, Issue 4

Effects of Shareholder Information on Corporate Decisions and Capital Market Equilibrium<923:EOSIOC>2.0.CO;2-C
p. 923-953

Chandra Kanodia

This paper examines the effect that imperfectly informed capital market agents have on the equilibrium paths of output, investment, and asset prices of value maximizing firms. Though information is imperfect, rational expectations is imposed as an equilibrium condition. It is found that both asset prices and corporate decisions are simultaneously affected in such a way that the efficiency-optimality relationship between them is preserved. The effect of a fuller information structure is to move the economy from one efficient markets equilibrium to another.

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