Market liquidity, private information, and the cost of capital: Market microstructure studies on family firms in Japan

Takashi Ebihara, Keiichi Kubota, Hitoshi Takehara and Eri Yokota

Japan and the World Economy, 2014, vol. 32, issue C, 1-13

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: Family businesses; Cost of equity; Cost of debt; Information asymmetry; Liquidity (search for similar items in EconPapers)
JEL-codes: D82 G12 G32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:32:y:2014:i:c:p:1-13

DOI: 10.1016/j.japwor.2014.07.001

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