Stock Market Liquidity and the Cost of Raising Capital

37 Pages Posted: 16 Dec 2002

See all articles by James Weston

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Date Written: 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

Suggested Citation

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

James Peter Weston (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( 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/

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

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