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Liquidity Risk and Accounting Information

18 Pages Posted: 14 Aug 2011 Last revised: 26 Aug 2011

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: July 27, 2011

Abstract

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.

Keywords: Liquidity Risk, Trasparency, Information Quality, Asset Pricing, Financial Crisis

JEL Classification: G12, G14

Suggested Citation

Sadka, Ronnie, Liquidity Risk and Accounting Information (July 27, 2011). Journal of Accounting & Economics (JAE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1909078

Ronnie Sadka (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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