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The effect of information quality on liquidity risk

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  • Ng, Jeffrey
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    Abstract

    I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that higher information quality is associated with lower liquidity risk and that the reduction in cost of capital due to this association is economically significant. I also find that the negative association between information quality and liquidity risk is stronger in times of large shocks to market liquidity.

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    File URL: http://www.sciencedirect.com/science/article/pii/S016541011100036X
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 52 (2011)
    Issue (Month): 2 ()
    Pages: 126-143

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    Handle: RePEc:eee:jaecon:v:52:y:2011:i:2:p:126-143

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Information quality; Earnings quality; Liquidity risk; Cost of capital; Disclosure;

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    Cited by:
    1. Orie Barron & Xuguang Sheng & Maya Thevenot, 2013. "Information Environment and The Cost of Capital," Working Papers 2013-003, The George Washington University, Department of Economics, Research Program on Forecasting.
    2. Dong, Ming, 2014. "The impact of firm-level transparency on the ex ante risk decisions of insurers: Evidence from an empirical study," ICIR Working Paper Series 14/14, International Center for Insurance Regulation (ICIR), Goethe University Frankfurt.
    3. Jankensgård, Håkan, 2013. "An Empirical Test of the Optimal Disclosure Hypothesis," Knut Wicksell Working Paper Series 2013/6, Knut Wicksell Centre for Financial Studies, Lund University.
    4. Mahmoud Moeinadin & Forough Heirany & Ehsan Khoshnood, 2013. "Impact of Information Risk on the Liquidity Risk of the Firms Listed on the Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 300-307, October.
    5. Fecht, Falko & Füss, Roland & Rindler, Philipp B., . "Corporate Transparency and Bond Liquidity," Working Papers on Finance 1404, University of St. Gallen, School of Finance.
    6. Karthik Balakrishnan & Mary B. Billings & Bryan T. Kelly & Alexander Ljungqvist, 2013. "Shaping Liquidity: On the Causal Effects of Voluntary Disclosure," NBER Working Papers 18984, National Bureau of Economic Research, Inc.

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