Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Disclosure, Liquidity, and the Cost of Capital

Disclosure, Liquidity, and the Cost of Capital ABSTRACT This paper shows that revealing public information to reduce information asymmetry can reduce a firm's cost of capital by attracting increased demand from large investors due to increased liquidity of its securities. Large firms will disclose more information since they benefit most. Disclosure also reduces the risk bearing capacity available through market makers. If initial information asymmetry is large, reducing it will increase the current price of the security. However, the maximum current price occurs with some asymmetry of information: further reduction of information asymmetry accentuates the undesirable effects of exit from market making. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Disclosure, Liquidity, and the Cost of Capital

Loading next page...
 
/lp/wiley/disclosure-liquidity-and-the-cost-of-capital-e1OA70mbz5

References (18)

Publisher
Wiley
Copyright
1991 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1991.tb04620.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This paper shows that revealing public information to reduce information asymmetry can reduce a firm's cost of capital by attracting increased demand from large investors due to increased liquidity of its securities. Large firms will disclose more information since they benefit most. Disclosure also reduces the risk bearing capacity available through market makers. If initial information asymmetry is large, reducing it will increase the current price of the security. However, the maximum current price occurs with some asymmetry of information: further reduction of information asymmetry accentuates the undesirable effects of exit from market making.

Journal

The Journal of FinanceWiley

Published: Sep 1, 1991

There are no references for this article.