Market liquidity, private information, and the cost of capital

Market microstructure studies on family firms in Japan

Takashi Ebihara, Keiichi Kubota, Hitoshi Takehara, Eri Yokota

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

We investigate cost of capital, information asymmetry, and market liquidity of listed family firms vs. non-family firms in Japan. First, we find that the cost of debt is lower and the cost of equity is higher for family firms than non-family firms, but the differences are not significant. The WACC of family firms becomes higher than that for non-family firms and the difference is significant probably because family firms in Japan use less leverage. Next, we find that the stocks of family firms are traded with higher information asymmetry than non-family firms. As for information asymmetry and illiquidity measures, we utilize the variables Adjusted PIN and Probability of Symmetric Order Flow Shocks (PSOS). Concomitantly we also estimate alternate conventional measures of market liquidity as a robustness check. Overall, the evidence on liquidity is somewhat mixed, while we find family firms show higher information asymmetry, which may affect cost of equity. As a final policy implication, we recommend family firms in Japan conduct more voluntary and timely disclosure, in particular, for the benefit of general stock investors, and may want to increase leverage to reduce the WACC.

Original languageEnglish
Pages (from-to)1-13
Number of pages13
JournalJapan and the World Economy
Volume32
DOIs
Publication statusPublished - 2014

Fingerprint

liquidity
capital market
Japan
firm
market
costs
asymmetry
equity
Cost of capital
Capital markets
Private information
Market microstructure
Family firms
Market liquidity
Information asymmetry
investor
indebtedness

Keywords

  • Cost of debt
  • Cost of equity
  • Family businesses
  • Information asymmetry
  • Liquidity

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Political Science and International Relations

Cite this

Market liquidity, private information, and the cost of capital : Market microstructure studies on family firms in Japan. / Ebihara, Takashi; Kubota, Keiichi; Takehara, Hitoshi; Yokota, Eri.

In: Japan and the World Economy, Vol. 32, 2014, p. 1-13.

Research output: Contribution to journalArticle

@article{7b5f09c667ba4284afc45eed5d09b602,
title = "Market liquidity, private information, and the cost of capital: Market microstructure studies on family firms in Japan",
abstract = "We investigate cost of capital, information asymmetry, and market liquidity of listed family firms vs. non-family firms in Japan. First, we find that the cost of debt is lower and the cost of equity is higher for family firms than non-family firms, but the differences are not significant. The WACC of family firms becomes higher than that for non-family firms and the difference is significant probably because family firms in Japan use less leverage. Next, we find that the stocks of family firms are traded with higher information asymmetry than non-family firms. As for information asymmetry and illiquidity measures, we utilize the variables Adjusted PIN and Probability of Symmetric Order Flow Shocks (PSOS). Concomitantly we also estimate alternate conventional measures of market liquidity as a robustness check. Overall, the evidence on liquidity is somewhat mixed, while we find family firms show higher information asymmetry, which may affect cost of equity. As a final policy implication, we recommend family firms in Japan conduct more voluntary and timely disclosure, in particular, for the benefit of general stock investors, and may want to increase leverage to reduce the WACC.",
keywords = "Cost of debt, Cost of equity, Family businesses, Information asymmetry, Liquidity",
author = "Takashi Ebihara and Keiichi Kubota and Hitoshi Takehara and Eri Yokota",
year = "2014",
doi = "10.1016/j.japwor.2014.07.001",
language = "English",
volume = "32",
pages = "1--13",
journal = "Japan and the World Economy",
issn = "0922-1425",
publisher = "Elsevier",

}

TY - JOUR

T1 - Market liquidity, private information, and the cost of capital

T2 - Market microstructure studies on family firms in Japan

AU - Ebihara, Takashi

AU - Kubota, Keiichi

AU - Takehara, Hitoshi

AU - Yokota, Eri

PY - 2014

Y1 - 2014

N2 - We investigate cost of capital, information asymmetry, and market liquidity of listed family firms vs. non-family firms in Japan. First, we find that the cost of debt is lower and the cost of equity is higher for family firms than non-family firms, but the differences are not significant. The WACC of family firms becomes higher than that for non-family firms and the difference is significant probably because family firms in Japan use less leverage. Next, we find that the stocks of family firms are traded with higher information asymmetry than non-family firms. As for information asymmetry and illiquidity measures, we utilize the variables Adjusted PIN and Probability of Symmetric Order Flow Shocks (PSOS). Concomitantly we also estimate alternate conventional measures of market liquidity as a robustness check. Overall, the evidence on liquidity is somewhat mixed, while we find family firms show higher information asymmetry, which may affect cost of equity. As a final policy implication, we recommend family firms in Japan conduct more voluntary and timely disclosure, in particular, for the benefit of general stock investors, and may want to increase leverage to reduce the WACC.

AB - We investigate cost of capital, information asymmetry, and market liquidity of listed family firms vs. non-family firms in Japan. First, we find that the cost of debt is lower and the cost of equity is higher for family firms than non-family firms, but the differences are not significant. The WACC of family firms becomes higher than that for non-family firms and the difference is significant probably because family firms in Japan use less leverage. Next, we find that the stocks of family firms are traded with higher information asymmetry than non-family firms. As for information asymmetry and illiquidity measures, we utilize the variables Adjusted PIN and Probability of Symmetric Order Flow Shocks (PSOS). Concomitantly we also estimate alternate conventional measures of market liquidity as a robustness check. Overall, the evidence on liquidity is somewhat mixed, while we find family firms show higher information asymmetry, which may affect cost of equity. As a final policy implication, we recommend family firms in Japan conduct more voluntary and timely disclosure, in particular, for the benefit of general stock investors, and may want to increase leverage to reduce the WACC.

KW - Cost of debt

KW - Cost of equity

KW - Family businesses

KW - Information asymmetry

KW - Liquidity

UR - http://www.scopus.com/inward/record.url?scp=84905400551&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84905400551&partnerID=8YFLogxK

U2 - 10.1016/j.japwor.2014.07.001

DO - 10.1016/j.japwor.2014.07.001

M3 - Article

VL - 32

SP - 1

EP - 13

JO - Japan and the World Economy

JF - Japan and the World Economy

SN - 0922-1425

ER -