Economics with Market Liquidity Risk

Acharya, Viral V.; Pedersen, Lasse Heje

doi:10.1561/104.00000083

Cited by 9 publications

(6 citation statements)

References 49 publications

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“…However, the second theory of Miller and Modigliani states that when corporate tax is considered, using debt increases the firm value because the interest cost of debt in the company is tax-deductible based on its significance. Thus, this reduces the expense and ultimately increases firm value [ 23 , 24 ]. So, relying on debt financing, organizations can increase their value.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Ross [ 25 ] has also shown in his research that when debt level increases, it provides a positive signal in the market as investors think that an organization can take debt and repay it where a decreased level of debt provides terrible signals. However, Acharya, Richardson [ 24 ] argued that a high level of debt creates the unavailability of the fund because it makes the organization looks vulnerable and risky to the lenders [ 23 ]. Besides, it increases the cost of debt, and thus, the ability to take debt at favourable terms becomes hard.…”

Section: Literature Reviewmentioning

confidence: 99%

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Corporate capital structure effects on corporate performance pursuing a strategy of innovation in manufacturing companies

Ahmed,

Rahman,

Rehman

et al. 2024

Heliyon

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Corporate capital structure effects on corporate performance pursuing a strategy of innovation in manufacturing companies

Ahmed,

Rahman,

Rehman

et al. 2024

Heliyon

View full text Add to dashboard Cite

“…The above mentioned limitations also characterize asymmetric information due to information disparity between market participants (Crawford, Pavanini & Schivardi, 2018). Market imperfections are another illiquidity risk source, where some market participants have greater influence to move the market by trading out large positions (Acharya & Pedersen, 2019). These large buy or sell positions can move the market price considerably, resulting in a liquidity freeze.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Exploring illiquidity risk pre and during the COVID-19 pandemic era: Evidence from international financial markets

Enow

2023

JAI

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Research aims: Illiquidity risk is one of the complex issues that institutional investors and market participants continually face over time. It is because the constructs of illiquidity risk are sometimes complicated, robust, and not so evident in secondary markets. Hence, this study aims to empirically explore illiquidity risk before and during the COVID-19 pandemic to understand how much investors were expected to lose if they invested in stock markets during these periods.Design/Methodology/Approach: This study used a GARCH model and the Amihud illiquidity ratio to achieve its objective. Trading volumes and price returns for the JSE, CAC 40, DAX, Nasdaq, BIST 100, and SSE were from June 30, 2017, to June 30, 2019, and January 1, 2020, to December 31, 2021.Research findings: As expected, the findings revealed higher illiquidity risk during periods of financial distress, such as the COVID-19 pandemic. During the financial crisis, investors could lose up to $22268.44 a day in less developed markets, such as the JSE, while the average loss in developed markets ranged between $0.22 to $11.53 in the Nasdaq and DAX, respectively. On average, a much lower figure was observed before the financial crisis. The BIST100, CAC 40, DAX, and Nasdaq are excellent options for those seeking lower-risk premiums.Theoretical and Practitioner/Policy implication: Policies such as adequate market microstructure and greater transparency in trading are strongly recommended for less developed markets, especially during periods of financial distress. Also, the findings of this study provide valuable insight into short-term traders and market participants attracted to liquid markets, where they can easily enter and exit their positions with minimal transaction costs. To the author's knowledge, this paper is the first to model illiquidity risk in stock markets.Research limitation/Implication: It is possible that the current study did not accurately capture the cost of illiquidity in the sampled financial markets and cannot be applied to other financial markets.

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“…Several studies have investigated the risk of a stock price crash in various fields (Acharya and Pedersen 2019;Atanasov and Black 2016;Amihud 2018;Zaman et al 2021;Hossain et al 2022;Hasan et al 2021). In the area of political issues, Ebrati and Bahri Sales (2019) examined the effect of political relations on the stock price crash risk, emphasizing product market competitiveness.…”

Section: Theoretical Bases and Development Of Hypothesesmentioning

confidence: 99%

The Interactive Effect of Ownership Structure on the Relationship between Annual Board Report Readability and Stock Price Crash Risk

Shandiz

Zadeh

Askarany

2022

JRFM

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This study investigates the interactive effect of ownership structure on the relationship between annual board report readability and stock price crash risk in companies listed on the Tehran Stock Exchange (TSE). The negative skewness model was used to measure the crash risk of stock prices and the Fog index was used for determining the readability of the board of directors’ report. The ownership structure is examined in institutional ownership, significant managerial ownership, and family ownership. The data of companies listed on the TSE from 2013 to 2019 have been used. The statistical method of this research is multiple regressions and, to test the research hypotheses, the data panel model and the ordinary least squares method have been employed. Overall, this study provides new evidence to explain the reporting quality and the crash risk of stock prices from the lenses of the agency theory. It further investigates the interactive effect of ownership structure on the relationship between annual board report readability and stock price crash risk. The results show a significant correlation between the readability of the board of directors’ report and the crash risk of stock prices. Furthermore, the relationship between the readability of the board report and stock price crash risk is not affected by the ownership structure, including institutional ownership, significant managerial ownership, and family ownership. It can be inferred that an ownership structure, which includes institutional shareholders, significant shareholders, and family ownership, increases the supervision of managers and their reports, so they cannot keep adverse information from being released. This will ultimately improve the readability of their reports and reduce the risk of stock price crashes.

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Economics with Market Liquidity Risk

Cited by 9 publications

References 49 publications

Corporate capital structure effects on corporate performance pursuing a strategy of innovation in manufacturing companies

Corporate capital structure effects on corporate performance pursuing a strategy of innovation in manufacturing companies

Exploring illiquidity risk pre and during the COVID-19 pandemic era: Evidence from international financial markets

The Interactive Effect of Ownership Structure on the Relationship between Annual Board Report Readability and Stock Price Crash Risk

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