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The effect of information quality on liquidity risk

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  • Ng, Jeffrey

Abstract

I investigate whether information quality affects the cost of equity capital through liquidity risk. Liquidity risk is the sensitivity of stock returns to unexpected changes in market liquidity; recent asset pricing literature has emphasized the importance of this systematic risk. I find that higher information quality is associated with lower liquidity risk and that the reduction in cost of capital due to this association is economically significant. I also find that the negative association between information quality and liquidity risk is stronger in times of large shocks to market liquidity.

Suggested Citation

  • Ng, Jeffrey, 2011. "The effect of information quality on liquidity risk," Journal of Accounting and Economics, Elsevier, vol. 52(2), pages 126-143.
    • Handle: RePEc:eee:jaecon:v:52:y:2011:i:2:p:126-143
    DOI: 10.1016/j.jacceco.2011.03.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Information quality; Earnings quality; Liquidity risk; Cost of capital; Disclosure;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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