The Paradox of Liquidity

Stewart C. Myers and Raghuram Rajan

No 5143, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The more liquid a company's assets, the greater their value in a short-notice liquidation. Liquid assets are generally viewed as increasing debt capacity, other things being equal. This paper focusses on the dark side of liquidity: greater liquidity reduces the ability of borrowers to commit to a specific course of action. It examines the effects of differences in asset liquidity on debt capacity. It suggests an alternative theory of financial intermediation and disintermediation.

JEL-codes: G20 G32 (search for similar items in EconPapers)
Date: 1995-06
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Quarterly Journal of Economics, Vol 113, no. 3 (August 1998): 733-771.

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Journal Article: The Paradox of Liquidity (1998)
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