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The Effects of Asset Liquidity: Evidence from the Contract Drilling Industry

Posted: 14 Aug 1998  

Chyhe E. Kim

University of Chicago

Abstract

I use both the depth of the buyers' market and trading volume to measure asset liquidity in the contract drilling industry and find that drilling rigs were less liquid than oil wells. The results indicate that managers avoid selling illiquid assets unless they face high cost alternative sources of funds. The evidence also suggests that managers follow a "pecking order" of asset sales, selling liquid assets before illiquid assets. Finally, I find evidence that the liquidity of a firm's asset portfolio increases its debt capacity. I conclude that asset liquidity is an important consideration in investment and capital structure decisions.

JEL Classification: D51, D92, G20, G21

Suggested Citation

Kim, Chyhe E., The Effects of Asset Liquidity: Evidence from the Contract Drilling Industry. Journal of Financial Intermediation, Vol. 7, Issue 2. Available at SSRN: https://ssrn.com/abstract=106613

Chyhe E. Kim (Contact Author)

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States
312-507-7371 (Phone)
312-931-0988 (Fax)

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