Information Asymmetry in Equity Markets Costs Economy $60 Billion Annually in Lost Investment, Wharton Study Finds

When companies issue new equity, they're not just raising capital—they're sending a signal to the market about their quality. And according to new research from Wharton's Thomas Winberry, that signal creates a problem that economists have been underestimating for decades: it's costing the U.S. economy roughly $60 billion per year in lost investment.

The paper, published today, applies George Akerlof's famous "lemons" theory—originally about used car markets—to corporate finance. The finding matters for CFOs because it quantifies something finance leaders have long suspected: the mere act of issuing equity during uncertain times can trigger a market-wide freeze, even for healthy companies.

Here's the mechanism. When economic conditions deteriorate and information becomes harder to interpret, investors can't easily distinguish between companies issuing equity because they have great projects (good) versus companies issuing equity because they're desperate (bad). The result? They assume the worst about everyone. Winberry calls these moments "lemon shocks"—periods when information asymmetry spikes and aggregate investment drops as a consequence.

The research introduces what Winberry terms "lemon shocks" into standard macroeconomic models of corporate investment. During these episodes, the gap between what company insiders know and what outside investors can observe widens dramatically. Investors respond by demanding higher returns or simply refusing to provide capital, which forces even fundamentally sound companies to scale back investment plans.

The $60 billion annual figure represents the aggregate cost to the economy from this dynamic. That's not a one-time loss from a single crisis—it's the recurring drag on productive investment that happens because equity markets can't perfectly separate high-quality issuers from low-quality ones.

For finance leaders, the implications are uncomfortable. The research suggests that the traditional playbook—"go to the equity markets when you need growth capital"—carries a hidden tax that varies with market conditions. During periods of heightened uncertainty, that tax becomes prohibitively expensive, not because your company's fundamentals changed, but because investors can't tell if you're a lemon.

The timing of the research is notable. Wharton published the findings on February 17, 2026, as corporate finance teams navigate an environment where AI-driven automation is changing both investment needs and the information available to markets. The question for CFOs becomes: does better data infrastructure reduce lemon shocks, or does the complexity of AI investments make the information asymmetry worse?

Winberry's work builds on Akerlof's 1970 paper, which showed how information asymmetry can cause entire markets to collapse. In the used car example, sellers know whether they're selling a lemon, but buyers don't—so buyers offer low prices, which drives good cars out of the market, which makes buyers even more suspicious, and so on. The same spiral, Winberry argues, happens in equity markets during periods of heightened uncertainty.

The practical challenge for finance leaders is that you can't simply "fix" this problem at the firm level. Even if your company has pristine fundamentals and transparent reporting, you're still affected by the market's general inability to distinguish quality during lemon shocks. The research suggests that the solution, if there is one, requires either better information infrastructure across the entire market or alternative financing mechanisms that don't trigger the same adverse selection dynamics.

The $60 billion figure also raises questions about the true cost of financial market frictions. Most macroeconomic models treat equity issuance as relatively frictionless, but Winberry's research suggests that information problems create a persistent drag on aggregate investment—one that compounds during periods when investment matters most.

What remains unclear is how this dynamic plays out in an era of increasingly sophisticated financial analysis and real-time data. The research provides the framework, but the question for 2026 is whether modern information technology reduces lemon shocks or simply changes their character.