Information Asymmetry in Equity Markets Costs Economy $180 Billion Annually in Lost Investment, Wharton Study Finds

New research from Wharton quantifies what finance chiefs have long suspected: when investors can't tell good companies from bad ones, everyone pays the price—and that price tag runs into the hundreds of billions.

A working paper by Wharton finance professor Thomas Winberry puts hard numbers on the economic drag created by "lemon shocks"—moments when information asymmetry about equity issuers suddenly worsens, causing investors to retreat from the market entirely. The result, according to Winberry's model, is approximately $180 billion in lost aggregate investment annually across the U.S. economy.

The research resurrects George Akerlof's famous 1970 "lemons" problem—where buyers can't distinguish quality used cars from duds, so they assume everything's a lemon and the market collapses—and applies it to corporate equity issuance. But unlike Akerlof's theoretical exercise, Winberry's paper attempts to measure the actual macroeconomic consequences when this dynamic plays out in capital markets.

Here's the mechanism: When a negative shock hits information quality in equity markets (say, an accounting scandal breaks or regulatory disclosure requirements weaken), investors suddenly can't tell which firms are solid investment opportunities and which are garbage. Rational investors respond by assuming the worst and demanding higher returns across the board. High-quality firms that would have issued equity to fund productive investments now find the cost of capital prohibitively expensive. They either don't invest at all, or they invest less than they otherwise would have.

The aggregate effect, Winberry argues, is measurable and substantial. His model suggests these information shocks don't just redistribute capital—they actually destroy investment opportunities that would have generated real economic value.

For CFOs navigating equity issuance decisions, the research offers an uncomfortable implication: your cost of capital isn't just about your company's fundamentals. It's also about how much investors trust the market's information infrastructure at that particular moment. A firm with pristine financials can find itself paying a "lemon premium" simply because investors are spooked about disclosure quality elsewhere in the market.

The timing of the research is notable. As of February 2026, finance leaders are grappling with new disclosure requirements around AI capabilities, sustainability metrics, and other areas where standardized reporting frameworks remain underdeveloped. Winberry's framework suggests that this period of information uncertainty—where investors struggle to assess the quality of new types of disclosures—could itself constitute a "lemon shock" with real costs for aggregate investment.

The paper also speaks to an ongoing debate in corporate finance circles about the value of robust disclosure regimes. Critics of extensive disclosure requirements often point to compliance costs. But Winberry's model implies there's a flip side: weak or inconsistent disclosure creates its own cost in the form of higher capital costs for everyone, including firms that would happily disclose more if they could credibly signal their quality.

The $180 billion figure represents Winberry's estimate of the annual investment lost to these information frictions—projects that would have positive net present value in a world of perfect information but don't get funded because investors can't distinguish the good bets from the bad ones.

Whether that number holds up to empirical scrutiny remains to be seen. (Winberry's paper is a working model, not an empirical study tracking actual investment flows.) But the conceptual point stands: information asymmetry isn't just a theoretical curiosity from a 1970 economics paper. It's a friction with measurable economic consequences, and CFOs are on the front lines of managing it every time they consider tapping equity markets.