NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Hernan Ortiz-Molina

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May 2010Asset Liquidity and the Cost of Capital
with Gordon M. Phillips: w15992
We study the effect of real asset liquidity on a firm’s cost of capital. We find an aggregate asset-liquidity discount in firms’ cost of capital that is strongly counter-cyclical. At the firm-level we find that asset liquidity affects firms’ cost of capital both in the cross section and in the time series: Firms in industries with more liquid assets and during periods of high asset liquidity have lower cost of capital. This effect is stronger when the asset liquidity is provided by firms operating within the industry. We also find that higher asset liquidity reduces the cost of capital by more for firms that face more competitive risk in product markets, have less access to external capital or are closer to default, and for those facing negative demand shocks. Our results suggest that ass...

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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