Armstrong, Christopher SCore, John ETaylor, Daniel J.Verrecchia, Robert E2023-05-222023-05-222011-03-012016-05-27https://repository.upenn.edu/handle/20.500.14332/1109This paper examines when information asymmetry among investors affects the cost of capital in excess of standard risk factors. When equity markets are perfectly competitive, information asymmetry has no separate effect on the cost of capital. When markets are imperfect, information asymmetry can have a separate effect on firms’ cost of capital. Consistent with our prediction, we find that information asymmetry has a positive relation with firms’ cost of capital in excess of standard risk factors when markets are imperfect and no relation when markets approximate perfect competition. Overall, our results show that the degree of market competition is an important conditioning variable to consider when examining the relation between information asymmetry and cost of capital.This is the peer reviewed version of the following article: ARMSTRONG, C. S., CORE, J. E., TAYLOR, D. J. and VERRECCHIA, R. E. (2011), When Does Information Asymmetry Affect the Cost of Capital?. Journal of Accounting Research, 49: 1–40., which has been published in final form at dx.doi.org10.1111/j.1475-679X.2010.00391.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms.information asymmetrycost of capitalmarket competitionexpected returnsAccountingMarketingArticle