Illiquidity as a signal

José Jorge and Charles Kahn

Journal of Financial Stability, 2020, vol. 50, issue C

Abstract: We propose a theory of corporate liquidity management in which signaling through illiquidity is cheaper than signaling through “skin in the game.” This causes ex post liquidation of worthy projects even when there are enough aggregate resources available for their continuation.

Keywords: Liquidity; Signaling; Economic policy (search for similar items in EconPapers)
JEL-codes: E44 E52 G28 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:50:y:2020:i:c:s1572308920300723

DOI: 10.1016/j.jfs.2020.100773

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