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Stock Market Liquidity and the Cost of Raising Capital
Alexander W. Butler Rice University - Jesse H. Jones Graduate School of Management Gustavo Grullon Rice University - Jesse H. Jones Graduate School of Management James Weston Rice University - Jesse H. Jones Graduate School of Management November 25, 2002 Abstract: This paper shows that stock market liquidity is an important determinant of the cost of raising external capital. Using 2,387 seasoned equity offerings (SEOs) from 1993-2000, we find that, after controlling for other factors, investment banks charge lower fees to firms with more liquid stocks. We also find that the time to complete an SEO declines with the level of market liquidity. These results imply that stock market liquidity may affect the value of a firm through its effect on flotation costs.
Keywords: Liquidity, Cost of capital, investment banking Working Paper SeriesDate posted: December 16, 2002 ; Last revised: December 16, 2002Suggested CitationContact Information
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