Acquiring information consumes investors' learning capacity, a valuable and limited resource
that requires optimal allocation.
Chapter One theoretically explores and empirically examines the roles of macroeconomic
announcements when investors digest firm-earnings news. Macroeconomic announcements
can distract investors upon being released if information about the aggregate risk competes
with firm-earnings news to occupy investors' learning capacity. However, valuable information
about the aggregate risk is disclosed to the general public via these announcements,
temporarily lifting the burdens on investors to privately acquire such information and therefore
leaving them more learning capacity to process firm-specific information.
Combining these competing views, this chapter incorporates the releases of macroeconomic
announcements into a rational inattention framework, and proposes the "attention
re-allocation mechanism" to understand their effects on informational efficiency of individual
firms. This mechanism confirms the distracting effects of macroeconomic announcements
prior to being released and their complementary effects upon being released. This framework
further predicts that these effects are more (less) pronounced during expansions (recessions).
Empirical evidence is provided to support model predictions.
Chapter Two revisits information acquisition theory from a corporate governance perspective.
In this chapter, I provide a rational expectations framework to model monitoring
and information acquisition and explore their within- firm and cross- firm interactions. My
model proposes the "monitoring-for-learning" mechanism to describe that investors optimally
re-allocate monitoring effort from firms with low value of information acquisition to
firms with high value of information acquisition. This mechanism has empirical implications
for information acquisition: Institutional investors tend to acquire more precise information
about the firms they can more effectively engage with and about those they have larger
holdings in. Chapter Three provides empirical evidence to support model predictions in
Chapter Two.