skip to primary navigationskip to content
 

How Do Informational Frictions Affect the Firm's Choice of Asset Liquidity? The Effect of SOX Section 404

When Feb 11, 2013
from 11:00 AM to 12:30 PM
Where Cambridge Judge Business School W2.02
Contact Name
Add event to calendar vCal
iCal

Felipe Cortes, Olin Business School, Washington University in St. Louis

Abstract:

Although existing theories predict a causal link between informational frictions in financial markets and a firm’s choice of asset liquidity, the lack of an exogenous and clean measure of informational frictions hinders the precise identification of this link. Using the discontinuous requirement of financial reporting introduced by Section 404 of the Sarbanes-Oxley Act, we identify a causal effect of informational frictions on the holding of liquid assets. By employing the cash ratio as a measure of corporate liquidity, we show that firms that comply with Section 404 and provide more reliable information to the financial markets reduce their holding of liquid assets compared to observationally similar firms. In the cross-section, the reduction in asset liquidity is more pronounced among firms that face financial constraints and agency conflicts, consistent with such firms having a high opportunity cost of funds. Finally, firms that comply with Section 404 and hold less cash present a higher expenditure in R&D relative to firms not complying with the rule. This difference sheds light on the opportunity cost of holding cash.

« November 2018 »
November
MoTuWeThFrSaSu
1234
567891011
12131415161718
19202122232425
2627282930

RSS Feed Latest news

Winners of the Best Student Paper Award 2018 announced

Aug 21, 2018

Cambridge Finance is proud to announce the winners of the Best student Paper Award for 2017-2018

View all news

Upcoming events

Cambridge Finance Workshop - Hubert Kempf

Nov 22, 2018

Room W4.05, Cambridge Judge Business School

Cambridge Finance Workshop - Jean-Edouard Colliard

Jan 24, 2019

Room W4.05, Cambridge Judge Business School

Cambridge Finance Workshop -Naomi R. Lamoreaux

Feb 07, 2019

W2.02, Cambridge Judge Business School

Previous events

Upcoming events