Economics at your fingertips  

Investor protection effects on corporate liquidity and the cost of capital

Monish Chhabra, Stephen Ferris and Nilanjan Sen

Applied Economics Letters, 2009, vol. 16, issue 8, 819-826

Abstract: Studies by LaPorta et al. (2000, 2002) show that the strong protection of investor rights encourage the development of capital markets and are associated with higher levels of firm valuation as measured by Tobin's Q. Related research finds that well-developed capital markets produce higher rates of economic growth and allocate capital more efficiently. These studies fail, however, to explain how the investor protection environment produces higher firm values or facilitates the more efficient allocation of investment capital. Using a sample of 158 ADRs representing 26 different countries, this study provides such a linkage by examining the effect of investor protection levels on share liquidity and the firm's cost of capital. We find that lower levels of investor protection reduce share liquidity while simultaneously resulting in a higher cost of equity capital. The combination of less liquidity with a higher cost of capital suggests an explanation for the lower values observed for firms incorporated in countries with fewer investor protections.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link) ... 40C6AD35DC6213A474B5 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

DOI: 10.1080/13504850701221915

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2023-11-30
Handle: RePEc:taf:apeclt:v:16:y:2009:i:8:p:819-826