Does information risk affect the implied cost of equity capital? An analysis of PIN and adjusted PIN

► Prior studies document that trade specification using the Lee and Ready (1991) algorithm is far from accurate. ► Using a unique dataset of Korean listed companies for which trade initiators are correctly identifiable, we reexamine whether PIN affects stock investors' expected rate of returns. ► We find that the bias-free adjusted PIN, purged of a liquidity component, is significantly and positively related to implied costs of equity (ICOE). ► Our findings suggest that the errors in PIN variables hamper a proper identification of PIN pricing in prior studies.