Green Investing, Information Asymmetry, and Category Learning
We investigate how the attention allocation of green-motivated investors changes information asymmetry in financial markets and thus affects firms’ financing costs. To guide our empirical analysis, we propose a model where an investor with green taste endogenously allocates attention to market or firm-specific shocks. We find that more green-motivated investors tend to give more attention to green firm-level information instead of market-level information. Thus higher green taste leads to less category learning behavior and reduces the information asymmetry. Furthermore, it suggests that higher green taste results in lower leverage and lower cost of capital of green firms.