The effect of information quality on liquidity risk

Research output: Journal article publicationJournal articleAcademic researchpeer-review

85 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)126-143
Number of pages18
JournalJournal of Accounting and Economics
Volume52
Issue number2-3
DOIs
Publication statusPublished - 1 Nov 2011
Externally publishedYes

Keywords

  • Cost of capital
  • Disclosure
  • Earnings quality
  • Information quality
  • Liquidity risk

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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