RiskCostofCapitalandCapitalBudgeting幻灯片.pptVIP

Liquidity and the Cost of Capital Cost of Capital Liquidity An increase in liquidity, i.e. a reduction in trading costs, lowers a firm’s cost of capital. Liquidity and Adverse Selection There are a number of factors that determine the liquidity of a stock. One of these factors is adverse selection. This refers to the notion that traders with better information can take advantage of specialists and other traders who have less information. The greater the heterogeneity of information, the wider the bid-ask spreads, and the higher the required return on equity. What the Corporation Can Do The cor