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In the wake of a negative information leak of a firm, are investors more concerned with the profitability of the information per se?

A) Yes
B) No

User Eric Dobbs
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1 Answer

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Final answer:

Investors care about a firm's leaked information mainly due to its impact on profitability, which influences their decision to invest as shareholders or bondholders in the context of imperfect information.

Step-by-step explanation:

In the context of a negative information leak of a firm, investors are often concerned with how the information will affect the company's profitability and, consequently, their investments. When a firm becomes established and its strategy predicts profits, imperfect information - where parties have unequal knowledge - becomes a factor. Investors rely on the accessible information about the firm's products, revenues, costs, and profits rather than personal knowledge of the managers, making it more enticing for them to invest as shareholders or bondholders. Thus, the profitability of the leaked information is significant as it directly relates to potential financial performance and the firm's ability to attract capital from external investors.

User Dmitry Markin
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