Abstract

References (21)

Beta

Citations (5)

Beta

One-Click Download | Share | Email | Add to Briefcase

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 Series

Date posted: December 16, 2002 ; Last revised: December 16, 2002

Suggested Citation

Weston, James Peter, Grullon, Gustavo and Butler, Alexander W., Stock Market Liquidity and the Cost of Raising Capital (November 25, 2002). Available at SSRN: http://ssrn.com/abstract=354720 or doi:10.2139/ssrn.354720

Export to: Export Citation What's this?

Contact Information

James Peter Weston (Contact Author) Rice University - Jesse H. Jones Graduate School of Management ( email ) 6100 South Main Street P.O. Box 1892 Houston, TX 77005 United States 713-348-4480 (Phone) 713-348-6331 (Fax)
Alexander W. Butler Rice University - Jesse H. Jones Graduate School of Management ( email ) MS 531 Houston, TX 77005 United States 713-348-6341 (Phone) HOME PAGE: http://www.owlnet.rice.edu/~awbutler/
Gustavo Grullon Rice University - Jesse H. Jones Graduate School of Management ( email ) P.O. Box 2932 Houston, TX 77252-2932 United States (713) 348-6138 (Phone) (713) 348-6331 (Fax) HOME PAGE: http://www.ruf.rice.edu/~grullon/