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 language | English |
|---|---|
| Pages (from-to) | 126-143 |
| Number of pages | 18 |
| Journal | Journal of Accounting and Economics |
| Volume | 52 |
| Issue number | 2-3 |
| DOIs | |
| Publication status | Published - 1 Nov 2011 |
| Externally published | Yes |
Keywords
- Cost of capital
- Disclosure
- Earnings quality
- Information quality
- Liquidity risk
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics