Liquidity, the Value of the Firm, and Corporate Finance
The theory of corporate finance has been based on the idea that a company's market value is determined mainly by just two variables: the company's expected after-tax operating cash flows or earnings, and the risk associated with producing them. The authors argue that there is another important factor affecting a company's value: the liquidity of its own securities, debt as well as equity. The paper supports this argument by reviewing the large and growing body of evidence showing that differences-and changes-in liquidity can have major effects on the pricing of corporate stocks and bonds or, equivalently, on investors' required returns for holding them. Copyright (c) 2008 Morgan Stanley.
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Volume (Year): 24 (2012)
Issue (Month): 1 (03)
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