Liquidity Risk and Accounting Information
Boston College - Carroll School of Management
July 27, 2011
Journal of Accounting & Economics (JAE), Forthcoming
This paper highlights the different avenues through which stock liquidity can potentially transcend into accounting research. Recently, Lang and Maffett show that transparency reduces firm-level liquidity uncertainty, while Ng shows that increased information quality can reduce a firm's exposure to systematic liquidity risk. These studies respectively suggest that accounting variables can affect firm valuation and cost-of-capital through their impact on different aspects of liquidity. Although some doubt may arise about the economic significance of such effects on average, further evidence from the recent financial crisis presented in this paper confirms the important role of accounting information during liquidity events.
Number of Pages in PDF File: 18
Keywords: Liquidity Risk, Trasparency, Information Quality, Asset Pricing, Financial Crisis
JEL Classification: G12, G14
Date posted: August 14, 2011 ; Last revised: August 26, 2011
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