When this cost varies across investors,investors
will differ in the extent to which they acquire information,which contributes to information asymmetry.Also,information asymmetry among investors can vary across firms such that it is negatively associated with transparency if investors’marginal acquisition costs are higher when there is less information about firm value beyond that reflected in earnings.
However, ultimately it is an empirical question whether transparency is cross-sectionally negatively associated with information asymmetry.To the extent that earnings transparency is not negatively associated with information
asymmetry, we will be unlikely to find a significant negative relation between earnings transparency and cost of capital.